Can Financial Engineering Cure Cancer?

David E. Fagnan, Jose Maria Fernandez, Andrew Lo () and Roger M. Stein

American Economic Review, 2013, vol. 103, issue 3, 406-11

Abstract: Traditional financing sources such as private and public equity may not be ideal for investment projects with low probabilities of success, long time horizons, and large capital requirements. Nevertheless, such projects, if not too highly correlated, may yield attractive risk-adjusted returns when combined into a single portfolio. Such "megafund" portfolios may be too large to finance through private or public equity alone. But with sufficient diversification and risk analytics, debt financing via securitization may be feasible. Credit enhancements (i.e., derivatives and government guarantees) can also improve megafund economics. We present an analytical framework and illustrative empirical examples involving cancer research.

JEL-codes: G10 G32 L65 O31 (search for similar items in EconPapers)
Date: 2013
Note: DOI: 10.1257/aer.103.3.406
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Citations: View citations in EconPapers (10)

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