Episode Details

In today's session, we tried applying (with mixed results) option pricing to value a patent. We argued that the fact that a patent is not viable today does not imply that the patent is not valuable. Valued as an option, patents have values in excess of their discounted cash flow value, though the magnitude of the premium can be a function of how competitive the market place is. In general, you are on pretty weak ground in using option pricing to value viable patents but it may be more useful in valuing non-viable patents in risky businesses.I have attached an option valuation spreadsheet that you can use to value patents as well as the post class test & solution.
Start of the class test:http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/realoption1.pdf
Slides: http://www.stern.nyu.edu/~adamodar/podcasts/valspr15/valsession21.pdf
Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session21test.pdf
Post class test solution:
http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session21soln.pdf

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