The real options approach to valuation - Haskayne School of Business

Real Op*ons Approach • Treat the patent protected R&D project or the patent as a complex op*on on the variables underlying the value of the project – expected costs to comple*on – an*cipated cash flows • Uncertainty is introduced in the analysis by allowing these variables to follow stochas*c processes through *me • The risk adjusted process for the cash flows is obtained using the “beta” of traded pharmaceu*cal companies