Company X is considering an investment of €15,000 in a new cybersecurity system to protect against cyber-attacks. In order to make an informed decision, Company X has performed a comprehensive analysis using various methods, including Game-Theoretic Analysis of Security Investment, Monte Carlo Simulation, and a Quantitative Finance Model.
The Game-Theoretic Analysis of Security Investment estimates the expected savings of the investment. Based on historical data and expert opinions, the probability of an attack is estimated to be 28%. The potential cost of a security breach is €100,000, while the probability of the security investment being successful in preventing an attack is 80%. Using these figures, the expected savings from the investment is calculated to be €22,400.
To further assess the potential outcomes of the investment, a Monte Carlo Simulation is performed using a quantitative finance model. The simulation randomly generates many possible outcomes based on different scenarios and probabilities. The results show that, in 95% of cases, the investment generates a positive return, with an expected return of €49,800 and a standard deviation of €23,500.
Finally, a Quantitative Finance Model is used to calculate the net present value (NPV) of the investment. The expected cash flows from the investment are estimated at €70,000 over three years, with a discount rate of 10%. The present value of the expected cash flows is calculated as €176,413.22. Considering the investment level of €15,000, the NPV is found to be €161,413.22.
Based on the results from the Game-Theoretic Analysis of Security Investment, Monte Carlo Simulation, and Quantitative Finance Model, the investment in the cybersecurity system is worth making. The expected savings of €22,400 show that the investment is strategically sound, while the Monte Carlo Simulation indicates a solid potential for significant returns with an expected return of €49,800. Furthermore, the Quantitative Finance Model reveals a positive NPV of €161,413.22, supporting the decision to invest in the cybersecurity system.