Returns to R&D Investment
Options Pricing
- Some R&D Investments Analogous to Financial Options (Basic R&D and Breakthrough Projects).
- Option Characteristics
- Large Upside Potential
- Highly Risky and Uncertain
- Desire to Limit Downside Exposure
- Initial Upfront Investment
- Series of Additional Payments
- Contingent on More Information
- Use Black-Scholes to determine option value at each Stage.