 Multi-stage product development with exploration, value-enhancing, preemptive and innovation optionsNicos Koussis, Spiros H. Martzoukos and Lenos Trigeorgis Journal of Banking & Finance, 2013, vol. 37, issue 1, 174-190 Abstract: We provide a real options framework for the analysis of product development that incorporates research and exploration actions, product attribute value-enhancing actions with uncertain outcome, as well as preemption and innovation options. We derive two-stage analytic formulas and propose a general multi-period solution using a numerical lattice approach. Our analysis reveals that exploration actions are more important when the project is out or at-the-money (near zero NPV) and less important for high project values. In a multi-stage setting, exploration actions are important even for in-the-money projects, when follow-on actions exist that can enhance the expected value of the project. With path-dependency, early actions are more valuable since they enhance the impact or reduce the cost of subsequent actions. Preemptive controls affecting rare event (jump) frequency and innovations that introduce positive jumps are more valuable for firms with higher frequency of competitive threats involving low volatility. Keywords: Real options; R&D; Technical risk; Path-dependency; Sequential-compound options; Jump-diffusion (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:37:y:2013:i:1:p:174-190 DOI: 10.1016/j.jbankfin.2012.08.020 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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