Patents as Real Options: A Sensitivity Analysis of Option Valuation Using the Binomial Model

Grid Thoma ()
Additional contact information
Grid Thoma: University of Camerino, 62032 Camerino, MC, Italy

Quarterly Journal of Finance (QJF), 2023, vol. 13, issue 02, 1-50

Abstract: Using the real option approach and the binomial decision tree model, patent value is discussed in terms of how patent protection gives firms flexibility in making investment decisions on whether or how to continue exploiting the underlying invention in the commercialisation phase. The results of this paper, in agreement with predictions of current financial theory, indicate that patent real option value increases when the following input factor conditions exist: increased patent asset value, longer time to the expiration of patent protection, higher interest rates, larger variability of future values of the patent asset, decreased patent commercialisation investment, and lower cost of delay in commercialisation investment decisions. Furthermore, patent real option value sensitivities are estimated for each of these input factors of the binomial decision tree model. More broadly, the paper provides a novel valuation tool for the monetary appraisal of patents and contributes to the IP literature on devising timely indicators of innovative activities.

Keywords: Patent valuation; patent real option; binomial model (search for similar items in EconPapers)
JEL-codes: G32 O32 O34 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S2010139223400050
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:qjfxxx:v:13:y:2023:i:02:n:s2010139223400050

Ordering information: This journal article can be ordered from

DOI: 10.1142/S2010139223400050

Access Statistics for this article

Quarterly Journal of Finance (QJF) is currently edited by Fernando Zapatero

More articles in Quarterly Journal of Finance (QJF) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().