Modelling a Bio-Pharmaceutical Company as a Compound Option

Wörner, Stefan; Racheva-Iotova, Boryana; Stoyanov, Stoyan V.

doi:10.1016/s1474-6670(17)33070-7

Cited by 1 publication

(2 citation statements)

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“…This means that the risk neutral approach of pricing a known underlying in incomplete markets falls short of individual risk preferences. The actual value of the underlying should thus be lower than the values calculated empirically using the algorithm described by Wo¨rner et al (2001).…”

Section: Introductionmentioning

confidence: 90%

“…Instead of considering a share price as an indicator for the price of a single European option and a compound option respectively (Wo¨rner et al, 2001), the value of the contingent claim could depend on the future state of many random variables. An option on a set of stochastic variables (the underlying) which is considered as a single asset is called basket option.…”

Section: Introductionmentioning

confidence: 99%

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The derivation of R&D return indicators within a real options framework

Wörner¹,

Grupp²

2003

R & D Management

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The purpose of this paper is to rework the building blocks of real option applications and to introduce a basket option framework. We find that the characteristic parameters of the risk neutral density function implied in observed share prices within the real option framework represent a novel category of R&D return indicators. Empirical evidence for a set of 13 US bio-pharmaceutical companies is provided. The novel R&D return indicator can be used to analyse investor's expectations on R&D success of a particular firm. The implications of this indicator on decision making are mainly based on its information content on technological and market risk of the products under development in a particular firm. A proposal for a potential application of the stability index in innovation research is discussed as well. The study thus is at the interface between innovation research and (empirical) finance

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Section: Introductionmentioning

confidence: 90%

Section: Introductionmentioning

confidence: 99%