Option game with Poisson Jump Process in company radical technological innovation

You Daming, Yang Xiaohui, Desheng Dash Wu and Chen Guofan

Technological Forecasting and Social Change, 2014, vol. 81, issue C, 341-350

Abstract: Since the 1990s, the trend of companies implementing technological innovation has accelerated so that people pay more attention to new technology development modes completely different from incremental technological innovation of the past — these new modes are collectively known as radical technological innovation. Based on the traditional symmetric duopoly timing option game model, this paper introduces the Poisson Jump Process to describe the impact of radical technological innovation on the market, defines the market impact index of radical technological innovation, and constructs a real option game model for radical technological innovation. It can be seen from the analysis on game equilibrium that a company will have a strong MOTIVATION for implementing radical innovation only when market reaction to its products is moderate. This paper further analyzes this conclusion in an industrial context — namely in growing industries, companies are prone to implementing radical technological innovation due to the existence of additional returns. In addition, this paper analyzes the key parameters in the model to conclude that the market impact index J of radical technological innovation and the Poisson process parameter λ both have a positive impact on both the investment value and investment limit. At the end, a case study is used to validate conclusions of the model.

Keywords: Radical technological innovation; Real options; Option game; Jump-diffusion process (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:tefoso:v:81:y:2014:i:c:p:341-350

DOI: 10.1016/j.techfore.2013.04.012

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