Valuation of R&D compound option using Markov chain approach
| Autor: | Giovanni Villani, Guglielmo D'Amico |
|---|---|
| Rok vydání: | 2021 |
| Předmět: |
Flexibility (engineering)
Sequence 050208 finance 021103 operations research Markov chain Mathematical finance 05 social sciences Technical success 0211 other engineering and technologies 02 engineering and technology Compound option Valuation (logic) 0502 economics and business Economics General Economics Econometrics and Finance Mathematical economics Value (mathematics) Finance |
| Zdroj: | Annals of Finance. 17:379-404 |
| ISSN: | 1614-2454 1614-2446 |
| DOI: | 10.1007/s10436-021-00389-1 |
| Popis: | Incorporation of technical risk in compound real options has been considered in Cassimon et al. (2011) concerning the valuation of multi-stage pharmaceutical R&D. There, the technical success probabilities at each development stage were assumed to be generated independently of each other. This assumption can be unrealistic in many applied problems, pharmaceutical R&D included. We present a valuation procedure dealing with dependent success probabilities and random development stage times. This greater flexibility allows a better description of the sequence of decision stages and results, which in turn, impact the value of the considered project. The theoretical results are illustrated through a numerical example that shows the implementation of the model to a pharmaceutical R&D problem. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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