Timing Strategy of Partial Outsourcing Based on Real Option

According to the characteristics of partial outsourcing,this paper considers the uncertainties of future profits both in outsourcing and in-house operation.We develop an outsourcing valuation model based on real option theory,and derive a solution of option price and outsourcing time using optimal stopping-time theory and option pricing theory.Our research shows that the stopping-time depends on the ratio of outsourcing profits and in-house operation profits,and a firm needs to wait longer before outsourcing when it can outsourcing less proportion and when market becomes more uncertain.