Valuation research of real options on the basis of life cycles R&D projects

The real options approach, which uses the concepts embedded in financial options to value non-financial investment opportunities under uncertainty, is ideally suited to value R&D projects. R&D products generally have four phases, birth, growth, maturity and decline. However, the real options approach used widely in the evaluation of R&D neglects this life cycle and so inappropriate. This paper will, based on productspsila life cycles, evaluate R&D projects by partial differential equation method and excisable quantification analysis. According to this, we expect to provide more scientific and rational decision-making guideline for R&D projects decision.