A three-stage real options model on fire risk management decision-making under the fire loss frequency uncertainty

This paper aims to adopt the real options approach to the fire risk management decision-making of alternative fire insurance and fire security services in the context of the fire loss frequency uncertainty. This paper constructs a three-stage model to analyze the frequency of fire loss with a dynamic viewpoint and examines the ten years fire loss data of an international city to propose the optimal timing to buy fire insurance or install a fire security system. The research findings can serve as a reference to the fire insurance companies and fire security service providers in the design of new products and service offerings. The results, supported with many cases in real life, can offer insight to decision makers.