MODELLING A BIO-PHARMACEUTICAL COMPANY AS A COMPOUND OPTION

摘要

The theoretical rationale is presented for a simple Black-Scholes analysis to obtain the main characterising features of a price process which determines the value of bio-pharmaceutical firms. This information is used to calibrate a compound option model. Theoretical considerations and an analysis of simulations of the compound option framework, assuming different degrees of information, indicate that the compound option analogy portrays the actual situation of sequential research phases in bio-pharmaceutical drug development more appropriately than conventional Black-Scholes applications.