The Study Of Real Options Application On R&D Projects Evaluation

It is a broadly concerned, not only on theory but in practice, study topic inTechnology Management field that how to set up investment strategy of R&D projectunder uncertainty conditions. Because R&D is a kind of durable and strategic basicinvestment project, it faces a variety of uncertainties and decision-making flexibilities.Traditional quantitative evaluation methods normally lose potency to it, andqualitative analysis isn't convincible, either. By taking all kinds of uncertainties intoconsideration, real options theory can provides more flexibility to investmentdecision-making process, so it attracted great interest from academic field, so far, agreat number of option evaluation models have been developed.This paper focuses on comparison analysis of a few currently popular real optionevaluation models by a case calculation. The main content of the paper includes: 1.The basic theory of real option, introduces the notion of real option, the parametersaffected the estimation value and the taxonomy of real options. Also, the paper teststhe approximation of real option application on R&D project. 2. Introduces realoption evaluation models. By reviewing the origination and development of differentmodels, we describe some discrete and constant real option models. 3. Through asame case calculation, we compare the results of Black-Scholes model, compoundoption model and discrete model, point out the reason that causes such discrepancy. 4.Do sensitivity analysis to these models and explain the reason why different modelowns different sensitivity.Appling real option on R&D project value estimation will make investmentdecision-making more reasonable, and also breaks through the limitations oftraditional analysis approaches. The paper will provides scientific basis and helpfulreference to approximately use real option models on R&D investmentdecision-making.