Introduction to real R&D options

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This chapter introduces the concept of real research and development (R&D). There are some excellent classics on real R&D options, starting some 20 years ago, which are not originally considered real options, but where the R&D discovery, volume of sales, as well as the unit prices of the development are considered uncertain. Over the last five years, there has been a growth of real R&D option models, applied to a host of industries, especially biotechnology, e-commerce, and internet and telecommunications, as well as the exploration phase of natural resources. There are nine relatively new models and four new applications or refinements of previous models of R&D. The chapter discusses some model real R&D expenditure and its underlying project value as a perpetual American call (entry) or put (exit) option. There is an analytical solution for various jump processes. There are also analytical solutions for the follower and leader value functions in a duopoly, which are described in the chapter. © 2003 Elsevier Ltd All rights reserved.
Original languageEnglish
Pages (from-to)1-10
Number of pages9
JournalReal R & D Options
Publication statusPublished - Dec 2003


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