Application Of Fuzzy Real Option In R&D Project Evaluation

With the increasing competitive and globalized marketplace, innovation is one of theimportant key strategies for high technology firms to survive. Therefore, research anddevelopment (R&D) plays a key role in the successful performance for these firms. Allcompanies that engage in R&D face an important problem of selecting a project portfoliofor the mid-term future. The purpose of project portfolio decision is to allocate a limitedset of resources top projects in a way that balances risk, reward, and alignment withcorporate strategy. However, portfolio decisions are difficult, because of long lead timesfor R&D and market and technology dynamics. In addition, complex project and resourceinterdependencies further make portfolio decisions more difficult.There are many uncertainties in R&D.In addition, to select an appropriate set ofR&D projects, the valuation of R&D projects is important. Traditionally, discounted cashflow (DCF) analyses are the most frequently used methods for valuation of R&D projects.However, DCF analyses can underestimate R&D project values and lead to high-risk andhigh-payoff projects that will not be chosen. In recent years, the real options methods havegained growing attention in R&D project evaluation. The basic idea of the real optionsapproach is to transfer the sophisticated options pricing models used in capital markettheory to the valuation of risky R&D projects.In this paper, we consider the volatility of R&D project, the volatility is fuzzied. Itis applied to real options evaluation model of R&D project, we make a detailed analysisof volatility calculations and determination, we get the promotion of fuzzy real option.Fuzzy real option to calculate the R&D project comparison to the concept of real optionsapproach and the traditional net present value (NPV), we get the desired results. To thepractical uncertainties in the larger investment projects, more scientific, theoretical andpractical value.