Discussion paper

DP16112 Lockdowns as options

The irreversibility of dying coupled with gradual information acquisition over time on the likely arrival and eventual effectiveness of vaccines confers a real option value to lockdown strategies that delay the incidence of a pandemic. We show the analogy to binary options and provide a
pricing formula quantifying the option value embedded in a stochastic vaccine arrival process. The case for lockdown strategies becomes stronger the more likely vaccine discovery is, and the less uncertainty exists about its effectiveness.


van Wijnbergen, S (2021), ‘DP16112 Lockdowns as options‘, CEPR Discussion Paper No. 16112. CEPR Press, Paris & London. https://cepr.org/publications/dp16112