Kristian R. Miltersen
Department of Finance and Management Science
NO-5045 Bergen, NORWAY
NBER Working Papers and Publications
|March 2007||Real Options With Uncertain Maturity and Competition|
with Eduardo S. Schwartz: w12990
We develop a new approach to dealing with real options problems with uncertain maturity. This type of situation is typical for R&D investments and mine or oil exploration projects. These types of projects are characterized by significant on-going investment costs until completion. Since time to completion is uncertain, the total investment costs will also be uncertain. Despite the fact that these projects include complicated American abandonment/switching options until completion and European options at completion (because of fixed final investment costs) we obtain simple closed form solutions. We apply the framework to situations in which the owner of the project has monopoly rights to the outcome of the project, and to situations in which there are two owners who simultaneously invest, b...
|February 2004||R&D Investments with Competitive Interactions|
with Eduardo S. Schwartz: w10258
In this article we develop a model to analyze patent-protected R&D investment projects when there is (imperfect) competition in the development and marketing of the resulting product. The competitive interactions that occur substantially complicate the solution of the problem since the decision maker has to take into account not only the factors that affect her/his own decisions, but also the factors that affect the decisions of the other investors. The real options framework utilized to deal with investments under uncertainty is extended to incorporate the game theoretic concepts required to deal with these interactions. Implementation of the model shows that competition in R&D, in general, not only increases production and reduces prices, but also shortens the time of developing the prod...
Published: Miltersen, Kristian and Eduardo Schwartz. "R&D Investments With Competitive Interactions," Review of Finance, 2004, v8(3), 355-401.