In this paper, we propose a binomial approach to modeling sequential R&D investments. More specifically, we present a compound real options approach, simplifying the existing valuation methodology. Based upon the same set of assumptions as prior models, we show that the number of computational...

This article deals with the integration of taxes into real option-based investment models under risk neutrality and risk averison. It compares the possible approaches dynamic programming and contingent claims analysis to analyze their effects on the optimal investment rules before and after...