Evaluating pharmaceutical R&D under technical and economic uncertainty

@article{Pennings2011EvaluatingPR,
  title={Evaluating pharmaceutical R&D under technical and economic uncertainty},
  author={Enrico Pennings and Luigi Sereno},
  journal={European Journal of Operational Research},
  year={2011},
  volume={212},
  pages={374-385}
}
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 both up-and downward shocks. Practical application of this method is emphasized through a case analysis. We show that both uncertainties… CONTINUE READING
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