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Real Options
Primer Portfolion (6/4/02) A perspective on Real Options. Pricing an R&D Venture with Uncertain Time to Innovation (1/28/03) New product development often requires continued funding in a context where the time to innovation (time to product completion) is uncertain. At the same time, changing market conditions and the competitive environment often alter the profit outlook of the finished product. The high degree of uncertainty in this kind of project calls for periodic adjustment of funding policies and, consequently, a valuation methodology that accurately captures the interplay between uncertainty and management options. This article illustrates such methodology through a simple case study that incorporates important dynamic aspects of an R&D project that cannot be accommodated by traditional discounted cash-flow (DCF) valuation methodologies. Structured Approach to R&D Valuation - Using Investment Science to analyze new ideas (1/28/03) Many R&D managers have profited from realizing there is value in planning for uncertainty and that delaying some decisions until new information is available often is a value maximizing measure. This case study captures these ideas in a structured manner and illustrates an evaluation methodology based on two key principles. |
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