Graduation Year

Fall 2012

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

Janet Smith

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Terms of Use for work posted in Scholarship@Claremont.

Rights Information

© 2012 Max Brennan

Abstract

This paper examines the theoretical applicability and empirical rates of use for real options valuation and planning techniques. In theory, real options are the best valuation and planning tool for a biotechnology start-up, primarily due to the staged nature of investments and the discrete changes in probability between FDA approval stages. However, in a survey of 48 members of the Biotechnology Industry Association, results showed a low level of real options implementation. This paper then examines the possible reasons for the lack of implementation of real options and possible solutions, with the most popular surveyed reason being a lack of knowledge of the technique.

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