Abstract

MILANESI, Gastón S.. Quadranomial Sequential Real Options with Changing Volatility: Technological Uncertainties. Rev. mex. econ. finanz [online]. 2022, vol.17, n.1, e500.  Epub Oct 28, 2022. ISSN 2448-6795.  https://doi.org/10.21919/remef.v17i1.500.

The investments in biotechnologies for vaccine development characterizes by a set of sequential stages, from its development to the market launch, with multiple sources of uncertainty, highlight technological and market risks. These characteristics made that models like decision tree analysis and binomial real options, they won´t be apppropiated. The paper develops a valuation numerical model for this type of investment, with quadranomial probability distribution, characterizing technological and market risk, sequential options and changing volatility. The cases analysis method with a sequential options investment project relative of drug ´s development and later market launch is used. The project is valued with the proposed model and compared with the classical alternatives. The obtained results expose the higher capacity for valuing multiples sources of uncertainty and changing volatility of the model. This is a simple and versatile valuation tool, without complexity and refinement of other analytic proposals.

Keywords : G13; G31; Biotechnology; sequential options; quadranomial; changing volatility; rainbow options.

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