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Real options valuation under uncertainty
Lambert, Marie; Moreno, Manuel; Platania, Federico
2015
 

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Keywords :
Real options; R&D; Economic Risk; Fourier Series; Economic State Vector
Abstract :
[en] In this paper we develop a novel valuation model and methodology to value a pharmaceutical R&D project based on real options approach. The real options approach enables the possibility of optimally abandon the project before completion whenever the investment cost turns out to be larger than the expected net cash flow stream. On the other hand, the proposed model accounts for two different sources of uncertainty, those are technical and economic risk. This model incorporates a novel economic state vector where each economic state captures the interaction among different market and economic forces using Fourier series as the particular basis for the economic function space. In this sense, Fourier series are considered as an aggregate of forces playing a relevant role in the process evolution determining the cash flow structure and also allowing us to properly define an economic scenario where the project will be developed.
Disciplines :
Finance
Quantitative methods in economics & management
Author, co-author :
Lambert, Marie ;  Université de Liège - ULiège > HEC Liège : UER > Analyse financière et finance d'entreprise
Moreno, Manuel
Platania, Federico
Language :
English
Title :
Real options valuation under uncertainty
Publication date :
2015
Available on ORBi :
since 25 March 2015

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