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| Author: | Lee, J. Paxson, D. A. |
| Title: | Valuation of R&D real American sequential exchange options |
| Journal: | R. and D. Management
2001 : VOL. 31:2, p. 191-202 |
| Index terms: | VALUATION R&D AMERICA OPTIONS |
| Language: | eng |
| Abstract: | Valuation of R&D real American sequential exchange options requires specifying the pattern of R&D expenditures and the stochastic process of the eventual R&D project. The authors model the stages of R&D expense and then the ultimate discovery (and the development cost for the discovery) using real sequential (compound) exchange option models. The authors study E_Commerce R&D, so the timing is relatively short-term, with initial R&D, a second phase of R&D, and a final development phase, when the project values are realized. The authors use proxies from the financial markets for expected project value and cost volatilities (and correlation). Then the real option valuation is based on an approximate American sequential exchange option. |
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