Hemantha Herath - Academia.edu (original) (raw)

Papers by Hemantha Herath

Research paper thumbnail of Balanced Scorecard Implementation of Security Strategies: A Framework for IT Security Performance Management

Information Systems Management, 2010

The article develops a conceptual framework for strategic implementation of IT security using a b... more The article develops a conceptual framework for strategic implementation of IT security using a balanced scorecard (BSC) approach. Current research has mostly looked at economics of IT security, technical considerations, and behavioral aspects of what counter measures are available to firms instead of how successful or cost effective the investments or counter measures are. More specifically, our article provides a

Research paper thumbnail of Cyber-Insurance: Copula Pricing Framework and Implication for Risk Management

In recent years there has been a growing stream of research focusing on cyber-insurance. Risk tra... more In recent years there has been a growing stream of research focusing on cyber-insurance. Risk transference with insurance has been suggested by both practitioners and academics to absorb losses caused by security breaches as well as to supplement the existing set of security tools to manage IT security residual risk after IT security investments are made. In this paper, we investigate pricing of cyber-insurance products using the emerging copula methodology for modeling dependent risks from an actuarial approach which is different to the process approaches of Bohme and Kataria (2006) and Mukhopadhyay et. al. (2006). We discuss a framework for assessing the empirical dollar loss distribution from the empirical distribution of the number of infected computers. We develop a cyber-insurance model and demonstrate the Gumbel copula to price insurance premiums using a numerical example with ICSA data.

Research paper thumbnail of Real option valuation of timber harvesting contracts

Applied Stochastic Models in Business and Industry

Research paper thumbnail of Coping with the New Normal Imposed by the COVID-19 Pandemic: Lessons for Technology Management and Governance

Information Systems Management

The reliance of many facets of society on technology and online platforms has grown exponentially... more The reliance of many facets of society on technology and online platforms has grown exponentially during the COVID-19 pandemic. This drastic change has impacted all industries and service sectors alike including the health-care sector, education, retail, travel, food, and government agencies. The observations made in the last six months provide us with valuable insights for technology management and information systems. In this piece, we discuss some of these key insights.

Research paper thumbnail of Role of government regulatory pressures over small wineries: A Niagara Peninsula case study of compliance effects in wine bottling

Journal of Small Business Management

Research paper thumbnail of Healthy environment: a healthy investment for a healthier nation

Journal of the College of Community Physicians of Sri Lanka

Famous Clay's Handbook of Environmental Health says, Albert Einstein has noted that environment i... more Famous Clay's Handbook of Environmental Health says, Albert Einstein has noted that environment is 'everything that's not me' (1). In physiology, this 'me' and 'not me' are identified as internal and external environment, respectively. According to Frumkin (2004), environment is all the external factorsphysical, nutritional, social, behavioural and othersthat act on the health of humans (2). National Environmental Health Association of the United States of America (2017) defines environmental health as the science and practice of preventing human injury and illness; promoting wellbeing by identifying and evaluating the environmental sources and hazardous agents; and limiting exposures to hazardous physical, chemical and biological agents in air, water, soil, food and other environmental media/settings that may adversely affect human health (3). This definition contains two aspects namely environmental factors affecting health and practice of controlling such factors to improve human health. The physical, social and biological environment of man is identified as an important determinant of health. Poor environmental sanitation, inadequate access to safe drinking water, excessive atmospheric pollution, etc. are important determinants in the physical environment affecting health (4). The socioeconomic status, employment potential, positive employeremployee relationship, etc. are all important factors in man's social environment. The scope of environ-Healthy environment: a healthy investment for a healthier nation Presidential Address-2017/18 College of Community Physicians of Sri Lanka ment and its effects on human health is virtually limitless.

Research paper thumbnail of Profit-Driven Corporate Social Responsibility as a Bayesian Real Option in Green Computing

Journal of Business Ethics

Research paper thumbnail of Inference of economic truth from financial statements for detecting earnings management: inventory costing methods from an information economics perspective

Managerial and Decision Economics

Research paper thumbnail of Postauditing and Cost Estimation Applications: An Illustration of MCMC Simulation for Bayesian Regression Analysis

The Engineering Economist

Research paper thumbnail of Post-audits for managing cyber security investments: Bayesian post-audit using Markov Chain Monte Carlo (MCMC) simulation

Journal of Accounting and Public Policy

Research paper thumbnail of Economic Analysis of R&D Projects: An Options Approach

Http Dx Doi Org 10 1080 00137919908967506, May 31, 2007

ABSTRACT An emerging trend in research and development (R&D) project valuation is the... more ABSTRACT An emerging trend in research and development (R&D) project valuation is the use of options approach, which permits a more flexible assessment of the future growth opportunities in the entire process. The traditional DCF method when naively applied fails to capture all the future opportunities that create value, thereby resulting in an under investment in R&D. The options approach is more appropriate in a world of uncertainty because it views an R&D project as an initial investment that creates future follow-on commercial opportunities that are undertaken only if the initial R&D project is successful. Valuation of R&D projects is usually complex due to substantial uncertainties at different project phases, including the R&D phase and commercialization phases.Several recent papers on real options indicate that valuations of R&D projects based upon an options approach have been neglected by the finance community. To help correct this deficiency, we develop a valuation model that incorporates the risk-free arbitrage features of the binomial option pricing model into a decision tree framework. We apply the model to Gillette's new MACH3 project to illustrate how one can use the options approach rather than the conventional DCF method to value an R&D investment involving the introduction of a new product. In addition, we demonstrate how valuation can be linked to a company's stock price to make more-meaningful economic decisions in the real world. Our approach enhances traditional economic analysis methods and thinking by linking capital budgeting decisions and stock prices within an options framework. The purpose is to demonstrate value of future opportunities for companies that strive to maintain stock price growth. In doing so, we challenge the typical engineering economic analysis that views engineering projects in isolation, thereby creating a big gap between theory and practice.

Research paper thumbnail of Exploiting Uncertainty—Investment Opportunities as Real Options: A New Way of Thinking in Engineering Economics

Http Dx Doi Org 10 1080 00137910008967534, May 31, 2007

ABSTRACT A new trend in corporate planning is to exploit uncertainty by taking investment opportu... more ABSTRACT A new trend in corporate planning is to exploit uncertainty by taking investment opportunities as real options. This options approach is to complement the conventional net present value (NPV) criterion in evaluating risky investments. In this paper, we take a broad look at the real options approach to various engineering economic decision problems, laying out how it provides an immediate and important perspective on value creation in an uncertain world. Unlike financial options, real options analysisdeals with investments in real assets, which is one of the primary interest areas in engineering economics. For that reason, we believe that any advancement in the real options decision framework will benefit the field of engineering economics.

Research paper thumbnail of The Jackknife Estimator for Estimating Volatility of Volatility of a Stock

In this paper we demonstrate application of a statistical technique to estimate the volatility of... more In this paper we demonstrate application of a statistical technique to estimate the volatility of volatility of a stock, based on re-sampling method. The jackknife technique is easy to implement, useful in case of small sample data and does not place a heavy burden on data requirements. The paper describes the jackknife procedure and illustrates how it can be used to estimate the volatility of volatility. To demonstrate its practical use the pricing bias is analyzed using the stochastic volatility estimate as input in Hull and White (1987) model. Finally, confidence intervals are constructed for selecting among different weighting schemes as summarized in Mayhew (1995). The proposed technique is ideal for small data sets when implementing stochastic option pricing models.

Research paper thumbnail of Crack spread option pricing with copulas

Journal of Economics and Finance, 2013

Abstract A copula-based approach for pricing crack spread options is described. Crack spread opti... more Abstract A copula-based approach for pricing crack spread options is described. Crack spread options are currently priced assuming joint normal distributions of returns and linear dependence. Statistical evidence indicates that these assumptions are at odds with the ...

Research paper thumbnail of Multinomial Approximating Models for Options

Research paper thumbnail of Cyber-Insurance: Copula Pricing Framework and Implications for Risk Management

In recent years there has been a growing stream of research focusing on cyber-insurance. Risk tra... more In recent years there has been a growing stream of research focusing on cyber-insurance. Risk transference with insurance has been suggested by both practitioners and academics to absorb losses caused by security breaches as well as to supplement the existing set of security tools to manage IT security residual risk after IT security investments are made. In this paper, we investigate pricing of cyber-insurance products using the emerging copula methodology for modeling dependent risks from an actuarial approach which is different to the process approaches of Bohme and Kataria (2006) and Mukhopadhyay et. al. (2006). We discuss a framework for assessing the empirical dollar loss distribution from the empirical distribution of the number of infected computers. We develop a cyber-insurance model and demonstrate the Gumbel copula to price insurance premiums using a numerical example with ICSA data.

Research paper thumbnail of Analysis of the integrated gas chain

Research paper thumbnail of The Income Effects of Alternative Inventory Costing Methods from an Information Economics Perspective

SSRN Electronic Journal, 2000

Research paper thumbnail of Facilitating a team culture: a collaborative balanced scorecard as an open reporting system

Professor Marc Epstein …, 2010

... to weigh (or balance) measures when evaluating managers and the firm, and how to resolve conf... more ... to weigh (or balance) measures when evaluating managers and the firm, and how to resolve conflicts that arise in the BSC process (Datar, Kulp, & Lambert, 2001; Herath, Bremser, & Birnberg, 2009; Wong ... incentive compensation (eg, Indjejikian & Nanda, 2002; Murphy, 2001). ...

Research paper thumbnail of Using copula functions in Bayesian analysis: a comparison of the lognormal conjugate

The Engineering Economist

Bayesian techniques have been applied to analyze sequential investment decisions in the capital b... more Bayesian techniques have been applied to analyze sequential investment decisions in the capital budgeting literature. This article introduces copula-based Bayesian analysis as an alternative to the traditional approach where conjugate relationships do not exist. Using a numerical example, we illustrate the steps involved in the copula-based Bayesian approach. Graphical techniques for selecting an appropriate copula are also discussed. The unique ability of copulas to model nonlinear dependence rationalizes the use of copula functions as an alternative technique.

Research paper thumbnail of Balanced Scorecard Implementation of Security Strategies: A Framework for IT Security Performance Management

Information Systems Management, 2010

The article develops a conceptual framework for strategic implementation of IT security using a b... more The article develops a conceptual framework for strategic implementation of IT security using a balanced scorecard (BSC) approach. Current research has mostly looked at economics of IT security, technical considerations, and behavioral aspects of what counter measures are available to firms instead of how successful or cost effective the investments or counter measures are. More specifically, our article provides a

Research paper thumbnail of Cyber-Insurance: Copula Pricing Framework and Implication for Risk Management

In recent years there has been a growing stream of research focusing on cyber-insurance. Risk tra... more In recent years there has been a growing stream of research focusing on cyber-insurance. Risk transference with insurance has been suggested by both practitioners and academics to absorb losses caused by security breaches as well as to supplement the existing set of security tools to manage IT security residual risk after IT security investments are made. In this paper, we investigate pricing of cyber-insurance products using the emerging copula methodology for modeling dependent risks from an actuarial approach which is different to the process approaches of Bohme and Kataria (2006) and Mukhopadhyay et. al. (2006). We discuss a framework for assessing the empirical dollar loss distribution from the empirical distribution of the number of infected computers. We develop a cyber-insurance model and demonstrate the Gumbel copula to price insurance premiums using a numerical example with ICSA data.

Research paper thumbnail of Real option valuation of timber harvesting contracts

Applied Stochastic Models in Business and Industry

Research paper thumbnail of Coping with the New Normal Imposed by the COVID-19 Pandemic: Lessons for Technology Management and Governance

Information Systems Management

The reliance of many facets of society on technology and online platforms has grown exponentially... more The reliance of many facets of society on technology and online platforms has grown exponentially during the COVID-19 pandemic. This drastic change has impacted all industries and service sectors alike including the health-care sector, education, retail, travel, food, and government agencies. The observations made in the last six months provide us with valuable insights for technology management and information systems. In this piece, we discuss some of these key insights.

Research paper thumbnail of Role of government regulatory pressures over small wineries: A Niagara Peninsula case study of compliance effects in wine bottling

Journal of Small Business Management

Research paper thumbnail of Healthy environment: a healthy investment for a healthier nation

Journal of the College of Community Physicians of Sri Lanka

Famous Clay's Handbook of Environmental Health says, Albert Einstein has noted that environment i... more Famous Clay's Handbook of Environmental Health says, Albert Einstein has noted that environment is 'everything that's not me' (1). In physiology, this 'me' and 'not me' are identified as internal and external environment, respectively. According to Frumkin (2004), environment is all the external factorsphysical, nutritional, social, behavioural and othersthat act on the health of humans (2). National Environmental Health Association of the United States of America (2017) defines environmental health as the science and practice of preventing human injury and illness; promoting wellbeing by identifying and evaluating the environmental sources and hazardous agents; and limiting exposures to hazardous physical, chemical and biological agents in air, water, soil, food and other environmental media/settings that may adversely affect human health (3). This definition contains two aspects namely environmental factors affecting health and practice of controlling such factors to improve human health. The physical, social and biological environment of man is identified as an important determinant of health. Poor environmental sanitation, inadequate access to safe drinking water, excessive atmospheric pollution, etc. are important determinants in the physical environment affecting health (4). The socioeconomic status, employment potential, positive employeremployee relationship, etc. are all important factors in man's social environment. The scope of environ-Healthy environment: a healthy investment for a healthier nation Presidential Address-2017/18 College of Community Physicians of Sri Lanka ment and its effects on human health is virtually limitless.

Research paper thumbnail of Profit-Driven Corporate Social Responsibility as a Bayesian Real Option in Green Computing

Journal of Business Ethics

Research paper thumbnail of Inference of economic truth from financial statements for detecting earnings management: inventory costing methods from an information economics perspective

Managerial and Decision Economics

Research paper thumbnail of Postauditing and Cost Estimation Applications: An Illustration of MCMC Simulation for Bayesian Regression Analysis

The Engineering Economist

Research paper thumbnail of Post-audits for managing cyber security investments: Bayesian post-audit using Markov Chain Monte Carlo (MCMC) simulation

Journal of Accounting and Public Policy

Research paper thumbnail of Economic Analysis of R&D Projects: An Options Approach

Http Dx Doi Org 10 1080 00137919908967506, May 31, 2007

ABSTRACT An emerging trend in research and development (R&D) project valuation is the... more ABSTRACT An emerging trend in research and development (R&D) project valuation is the use of options approach, which permits a more flexible assessment of the future growth opportunities in the entire process. The traditional DCF method when naively applied fails to capture all the future opportunities that create value, thereby resulting in an under investment in R&D. The options approach is more appropriate in a world of uncertainty because it views an R&D project as an initial investment that creates future follow-on commercial opportunities that are undertaken only if the initial R&D project is successful. Valuation of R&D projects is usually complex due to substantial uncertainties at different project phases, including the R&D phase and commercialization phases.Several recent papers on real options indicate that valuations of R&D projects based upon an options approach have been neglected by the finance community. To help correct this deficiency, we develop a valuation model that incorporates the risk-free arbitrage features of the binomial option pricing model into a decision tree framework. We apply the model to Gillette's new MACH3 project to illustrate how one can use the options approach rather than the conventional DCF method to value an R&D investment involving the introduction of a new product. In addition, we demonstrate how valuation can be linked to a company's stock price to make more-meaningful economic decisions in the real world. Our approach enhances traditional economic analysis methods and thinking by linking capital budgeting decisions and stock prices within an options framework. The purpose is to demonstrate value of future opportunities for companies that strive to maintain stock price growth. In doing so, we challenge the typical engineering economic analysis that views engineering projects in isolation, thereby creating a big gap between theory and practice.

Research paper thumbnail of Exploiting Uncertainty—Investment Opportunities as Real Options: A New Way of Thinking in Engineering Economics

Http Dx Doi Org 10 1080 00137910008967534, May 31, 2007

ABSTRACT A new trend in corporate planning is to exploit uncertainty by taking investment opportu... more ABSTRACT A new trend in corporate planning is to exploit uncertainty by taking investment opportunities as real options. This options approach is to complement the conventional net present value (NPV) criterion in evaluating risky investments. In this paper, we take a broad look at the real options approach to various engineering economic decision problems, laying out how it provides an immediate and important perspective on value creation in an uncertain world. Unlike financial options, real options analysisdeals with investments in real assets, which is one of the primary interest areas in engineering economics. For that reason, we believe that any advancement in the real options decision framework will benefit the field of engineering economics.

Research paper thumbnail of The Jackknife Estimator for Estimating Volatility of Volatility of a Stock

In this paper we demonstrate application of a statistical technique to estimate the volatility of... more In this paper we demonstrate application of a statistical technique to estimate the volatility of volatility of a stock, based on re-sampling method. The jackknife technique is easy to implement, useful in case of small sample data and does not place a heavy burden on data requirements. The paper describes the jackknife procedure and illustrates how it can be used to estimate the volatility of volatility. To demonstrate its practical use the pricing bias is analyzed using the stochastic volatility estimate as input in Hull and White (1987) model. Finally, confidence intervals are constructed for selecting among different weighting schemes as summarized in Mayhew (1995). The proposed technique is ideal for small data sets when implementing stochastic option pricing models.

Research paper thumbnail of Crack spread option pricing with copulas

Journal of Economics and Finance, 2013

Abstract A copula-based approach for pricing crack spread options is described. Crack spread opti... more Abstract A copula-based approach for pricing crack spread options is described. Crack spread options are currently priced assuming joint normal distributions of returns and linear dependence. Statistical evidence indicates that these assumptions are at odds with the ...

Research paper thumbnail of Multinomial Approximating Models for Options

Research paper thumbnail of Cyber-Insurance: Copula Pricing Framework and Implications for Risk Management

In recent years there has been a growing stream of research focusing on cyber-insurance. Risk tra... more In recent years there has been a growing stream of research focusing on cyber-insurance. Risk transference with insurance has been suggested by both practitioners and academics to absorb losses caused by security breaches as well as to supplement the existing set of security tools to manage IT security residual risk after IT security investments are made. In this paper, we investigate pricing of cyber-insurance products using the emerging copula methodology for modeling dependent risks from an actuarial approach which is different to the process approaches of Bohme and Kataria (2006) and Mukhopadhyay et. al. (2006). We discuss a framework for assessing the empirical dollar loss distribution from the empirical distribution of the number of infected computers. We develop a cyber-insurance model and demonstrate the Gumbel copula to price insurance premiums using a numerical example with ICSA data.

Research paper thumbnail of Analysis of the integrated gas chain

Research paper thumbnail of The Income Effects of Alternative Inventory Costing Methods from an Information Economics Perspective

SSRN Electronic Journal, 2000

Research paper thumbnail of Facilitating a team culture: a collaborative balanced scorecard as an open reporting system

Professor Marc Epstein …, 2010

... to weigh (or balance) measures when evaluating managers and the firm, and how to resolve conf... more ... to weigh (or balance) measures when evaluating managers and the firm, and how to resolve conflicts that arise in the BSC process (Datar, Kulp, & Lambert, 2001; Herath, Bremser, & Birnberg, 2009; Wong ... incentive compensation (eg, Indjejikian & Nanda, 2002; Murphy, 2001). ...

Research paper thumbnail of Using copula functions in Bayesian analysis: a comparison of the lognormal conjugate

The Engineering Economist

Bayesian techniques have been applied to analyze sequential investment decisions in the capital b... more Bayesian techniques have been applied to analyze sequential investment decisions in the capital budgeting literature. This article introduces copula-based Bayesian analysis as an alternative to the traditional approach where conjugate relationships do not exist. Using a numerical example, we illustrate the steps involved in the copula-based Bayesian approach. Graphical techniques for selecting an appropriate copula are also discussed. The unique ability of copulas to model nonlinear dependence rationalizes the use of copula functions as an alternative technique.