 Valuation of R&D Investment Opportunities Using the Least-Squares Monte Carlo MethodGiovanni Villani ()
A chapter in Mathematical and Statistical Methods for Actuarial Sciences and Finance, 2014, pp 289-301 from Springer Abstract: Abstract In this paper we show the applicability of the Least Squares Monte Carlo (LSM) in valuing R&D investment opportunities. As it is well known, R&D projects are made in a phased manner, with the commencement of subsequent phase being dependent on the successful completion of the preceding phase. This is known as a sequential investment and therefore R&D projects can be considered as compound options. Moreover, R&D investments often involve considerable cost uncertainty so that they can be viewed as an exchange option, i.e. a swap of an uncertain investment cost for an uncertain gross project value. In this context, the LSM method is a powerful and flexible tool for capital budgeting decisions and for valuing R&D investments. In fact, this method provides an efficient technique to value complex real investments involving a set of interacting American-type options. Keywords: Cash Flow; Real Option; Investment Opportunity; Managerial Flexibility; Real Option Theory (search for similar items in EconPapers) There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-319-02499-8_26 Ordering information: This item can be ordered from DOI: 10.1007/978-3-319-02499-8_26 Access Statistics for this chapter More chapters in Springer Books from Springer |
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