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Pharmaceutical patents valuation through real options: Certainty equivalents and utility function

Author

Listed:
  • Julián Pareja Vasseur

    (Universidad EAFIT, Colombia)

  • Carolina Cadavid Pérez

    (Universidad EAFIT, Colombia)

Abstract

The purpose of this research is to propose and promote the use of real options through certainty equivalents and utility functions as alternative method to value a patent. Uncertainty and flexibility in the decisions making process during the different stages of the research, as well as the investor's particularities, are essential elements of the proposed methodology in order to find the certainty equivalent that provides a range of results to the investor, depending of the investor's attitude before risk. This method was adapted to a case of study regarding pharmaceutical patents of Serono International S. A. to evaluate the option of abandon. Finally, it was found that the proposed model allows to represent the non-diversified investor's preferences in incomplete markets and his/her different attitude before risk. We propose to apply other kind of utility functions in further researches with the intention to compare results.

Suggested Citation

  • Julián Pareja Vasseur & Carolina Cadavid Pérez, 2016. "Pharmaceutical patents valuation through real options: Certainty equivalents and utility function," Contaduría y Administración, Accounting and Management, vol. 61(4), pages 794-814, Octubre-D.
    • Handle: RePEc:nax:conyad:v:61:y:2016:i:4:p:794-814
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    More about this item

    Keywords

    Real options; Patents; Certainty equivalents; Biotechnology; Compound options;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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