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National Research University Higher School of EconomicsStudent ThesesAssessment of the strategic innovation projects using real options

Student
Title
Supervisor
Faculty
Educational Programme
Final Grade
Year of Graduation
Dar`ya P`yankova
Assessment of the strategic innovation projects using real options
Faculty of Economics
Master’s programme
2014
Keywords: Innovation Projects Valuation, Real Option Valuation, Fuzzy SetsInvestments in innovation projects are a new and insufficiently studied activity companies in the Russian market, however, a very important part of it. Innovation is closely related to investments, as in developing countries, including Russia, the introduction of new technologies often requires large financial expenditures, but financial institutions, which have such resources, occupy the position of waiting due to the instability of the economic and political situations.Thus, the relationship of innovation and investment is one of the main problems of introducing new technology. Currently, evaluation of investment projects is often used method of discounted cash flow (Discounted Cash Flows, DCF). However, both in theory and practice of global economy acknowledged that he did not meet the conditions peculiar to innovative projects for the following reasons: 1. Ignoring manager’s flexibility2. Incorrect calculation of the discount rate It is suggested to extend the concept of the project’s value, including an assessment of the strategic value that counts in modern methods based on real options (Real Option Valuation, ROV). Real options represent the right (but not the obligation) to buy (put) or sell (call) an asset in the future at a fixed price. Real Options is a method of the 21st century. If companies want to give yourself competitive advantage in the future, they should adopt this method.Currently, there are two leading methods of valuation of the real option and most other Option Valuation models bases on them: the Black-Scholes model (Black-Scholes Option Pricing Model) and the binomial model (Binomial Option Pricing Model). The disadvantage of these methods is the fixed assessment of input parameters, which for long projects in conditions of high uncertainty untrue.The purpose of the master's work is to improve the standard approaches to the assessment of innovative projects using an approach based on real options and the application of fuzzy set theory and the development of recommendations for the use of an improved approach for the evaluation of innovative projects. To achieve this goal it is necessary to solve a number of problems: 1. Study of domestic and foreign literature for further analysis of existing methods for assessing innovative projects, identify their strengths, weaknesses and areas of improvement;2. Methodologies for assessing innovative projects based on the integration of fuzzy sets and real options;3. Practical application of the proposed approach on an example of an innovation project;4. To develop the algorithm of the selection method for estimating project costs.As the result, value of the innovative project using methods based on discounted cash flow and real options was assessed. Cost of the project taking into account the manager’s flexibility has increased significantly, which shows that the project has been underestimated without it. The algorithms for the application of valuation methods project Black-Scholes and binomial model within fuzzy approach were developed. Algorithm of selection a method for evaluating the project was developed and an example of its use for a specific innovation project was proposed.

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