The objective of this paper is to develop the model that can be used to explain the amount of research and development (R&D) expenditures of large and mature companies. The research methodology is based on real options approach. We model companies' R&D expenditures as payments for the real option, which is the right of a company to invest in real assets in the future, and therefore to ensure business development. The main result is a valuation model, which includes several relevant factors. While existing research papers apply real options approach mostly to the R&D projects of particular companies or within particular industries and situations, the current paper applies the corresponding methodology in general and aggregated setting. We hope that it will contribute to understanding of R&D intensity in large innovative companies.
В. Л. Окулов, К. Р. Хафизова decision making. To calculate a fair risk premium for specific risks of the project we use a decision-making criterion on the basis of value-at-risk (VaR). The size of premium is estimated by Monte-Carlo simulation methods for a number of contingent projects that differ from each other either by term structure of payments or operating leverage. The results of our calculations show that the size of a specific risk premium is largely determined by the degree of operating leverage, but practically does not depend on term structure of payments. The results obtained in this paper are based on the assumption that managers act in accordance with the criterion of equality of VaR for the project future payments and for the future value of the best alternative investments. The paper discusses the possibility of using the VaR criterion and Monte-Carlo simulations in corporate practice for evaluating investment decisions. Unlike the traditional NPV method when market risk is set exogenously via the project beta, the simulation modeling allows to find out the market alternative with risk that equals to the risk of the project. The originality of the research lies in the application of a new criterion for investment decision making, which takes into account the company's tolerance to risk. Based on this criterion, it is possible to justify the use of markups to a discount rate, which is often done by companies in practice.
Adjustable-Rate Bonds with Puts (ARBP), frequently issued by the Russian companies, give the issuer the right to arbitrarily change the coupon payments on the bonds at certain moments. But at these moments, the investor has the right to force the issuer to redeem the bonds at a face value. These reciprocal actions of the issuer and investors can be considered as a dynamic game. We suggest a game-theoretic model that allow to determine the optimal decisions of the players. These decisions are compared with empirical data.
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