By Philipp N. Baecker, Prof. Ulrich Hommel (auth.), Prof. Dr. Thomas Dangl, Prof. Dr. Michael Kopel, Prof. Dr. Wolfgang Kürsten (eds.)

Dr.Thomas Dangl ist Ao.Univ.-Prof. am Institut für Managementwissenschaften der Technischen Universität Wien.
Dr. Michael Kopel ist ebenfalls Ao.Univ.-Prof. Universitätsdozent am Institut für Managementwissenschaften an der Technischen Universität Wien.
Prof. Dr. Wolfgang Kürsten ist Inhaber des Lehrstuhls für allgemeine Betriebswirtschaftlehre, insbesondere Finanzierung, Banken und Risikomanagement an der Friedrich Schiller-Universität Jena.

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Empirical work on real options in R&D is done by Robinson/Stuart (2002) who conduct a detailed, micro-level study of strategie alliance agreements many of which resemble venture capital contracts involving typieal elements like convertible preferred equity. McGrathlNerkar (2002) analyze a large sampie of patents by firms active in the biotechnology industry and find that R&D investments patterns are consistent with real options theory. As previosly pointed out, MacMillan/McGrath (2002) provide a good option analysis framework at a comparatively low level of technicality.

Wilmott et al. (1993). 99 Cf. BroadielDetemple (1996). 100 Cf. Boyle (1988). 101 Cf. Boyle et al. (1989), KamradlRitchken (1991). 102 A good overview of binornial and multinornial trees as weIl as other numerical and analytical procedures is provided by Shaw (1999). 103 Cf. Charnes/Shenoy (2000). 104 Cf. Wilmott et al. (1993). 105 Another example is the earlier paper by Barraquand/Martineau (1995). 106. Cf. also Keber (2000). 107 Cf. Charnes/Shenoy (2000). 108 Cf. Jaillet et al. (2001). 109 Cf.

Because trees suffer from the curse 0/ dimensionality, using them to tackle more complex switching options can be time-consuming or even practically impossible. Brekke/0ksendal (1994) also point out that, in a continous-time setting, not every optimal switching problem has a solution. 2. Discretization of the Underlying Assets' Price Processes: Monte Carlo Simulation As outlined previously, the value of an option corresponds to the risk-neutral expectation of its discounted payoff. In Monte Carlo simulation, a computer randomly creates a large number of realizations of the price process and obtains an estimate of the fair value by calculating the average present value of payoffs (under the risk-neutral measure).

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