E-Risk Management through Self Insurance: An Option Model

E-business organizations are under constant threat of their business being disrupted by hackers, viruses and a host of malicious attackers. This would lead to loses to the tune of millions. To ensure self-protection, they spend millions of dollars on firewalls, anti-virus, intrusion detection systems, digital signature and encryption. Nonetheless, a new virus or a clever hacker can easily compromise these deterrents. Organizations should resort to self e-risk insurance as a supplementary mechanism to reduce these individual financial losses. In this paper we propose two option modes for self- e-risk insurance, for hedging e-risk. The first is an exchange traded model, comprising of a long asset, long put and short call. The second is an over the counter model using a long call