Option Pricing Model to Value a Product Patent or Option
  • Option Pricing Model to Value a Product Patent or Option
Originally published: 05/07/2016 09:01
Publication number: ELQ-93403-1
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Option Pricing Model to Value a Product Patent or Option

This program calculates the value ofa product patent or a project as an option

Description
The user has to input the following variables
1. Present value of net cashflows from taking project now.
2. Variance in the present value, as a function of environmental and technical changes.
3. Present value of the cost of developing the product/project for commerical use.
4. Riskless interest rate that corresponds to length of the product patent.
5. Length of the product patent / rights to the project.
6. Expected annual after-tax cashflow from project after it is developed.

Note: this model is being shared with the authorization of Professor Aswath Damodaran from NYU Stern Business School (www.damodaran.com)

This business tool includes
1 Excel Model

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Further information

Output:
- Value of the product patent/project right

Assumptions
1. All the assumptions underlying the Black-Scholes model apply
2. The current value of the project and the variance in this value are known.

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