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This study sets up a compound option approach for evaluating pharmaceutical R&D investment projects in the presence of technical and economic uncertainties. Technical uncertainty is modeled as a Poisson jump that allows for failure and thus abandonment of the drug development. Economic uncertainty is modeled as a standard di¤usion process which incorporates(More)
In this paper we consider N −phased investment opportunities where the time evolution of the project value follows a jump-diusion process. An explicit valuation formula is derived under two dierent scenarios: in the rst case we consider xed and certain investment costs and in the second case we consider cost uncertainty and assume that investment costs(More)
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