Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/156271
Authors: 
Hauschild, Bastian
Reimsbach, Daniel
Year of Publication: 
2015
Citation: 
[Journal:] Business Research [ISSN:] 2198-2627 [Publisher:] Springer [Place:] Heidelberg [Volume:] 8 [Year:] 2015 [Issue:] 1 [Pages:] 39-59
Abstract: 
In this paper, we propose a binomial approach to modeling sequential R&D investments. More specifically, we present a compound real options approach, simplifying the existing valuation methodology. Based upon the same set of assumptions as prior models, we show that the number of computational steps for valuing any compound option can be reduced to a single step. We demonstrate the applicability of our approach using the real-world example of valuing a new drug application. Overall, our work provides a heuristic framework for fostering the adoption of binomial compound option valuation techniques in R&D management.
Subjects: 
Research and development
Real options
Compound options
Resource allocation
Binomial model
JEL: 
O32
G11
Persistent Identifier of the first edition: 
Creative Commons License: 
http://creativecommons.org/licenses/by/4.0/
Document Type: 
Article

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