A Real Options Approach, Pricing a Pharmaceutical R&D project using the Least Squares Monte Carlo Algorithm

Dai, Kai (2007) A Real Options Approach, Pricing a Pharmaceutical R&D project using the Least Squares Monte Carlo Algorithm. [Dissertation (University of Nottingham only)] (Unpublished)

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Abstract

This thesis implements the Least Squares Monte Carlo Approach to value a pharmaceutical R&D project.

The main objective of this thesis is to identify the usefulness of the Least Squares Monte Carlo (LSM) Approach for the R&D investment valuation. Schwartz (2001) proposes a LSM algorithm in the article Patents and R&D as Real Options. This algorithm is implemented by using a program developed by MATLAB.

Before this thesis, Navarro Hernandez (2003) has already attempted to implement Schwartzs algorithm by the MATLAB program. However, the implementation failed due to the misunderstanding of the LSM approach as well as the mistakes in programming. In order to implement the LSM successfully, this thesis proposes a simple numerical example to identify the algorithm of the LSM approach and puts a lot of efforts on programming the algorithm.

Besides the implementation of the LSM approach, this thesis also provides a systematical review on the real option approach. The advantages of LSM approach for pharmaceutical R&D investment valuation are also explored.

Finally, this thesis introduces the detailed pharmaceutical R&D process, so that it can be fully understood with little or no background knowledge of this industry.

Item Type: Dissertation (University of Nottingham only)
Keywords: Real Options Approach, Least Squares Monte Carlo Algorithm, MATLAB program, Pharmaceutical R&D Investment
Depositing User: EP, Services
Date Deposited: 06 Mar 2008
Last Modified: 23 Oct 2016 00:45
URI: http://eprints.nottingham.ac.uk/id/eprint/21321

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