Option Model for Realization of Innovation Projects

Abstract

Model for realization of innovation project which is based on the theory of real options is proposed in the paper. The option character of relations between a customer and a contractor is given with justification and is considered as a real option of project denial. The paper considers realization of the innovation project in accordance with the scheme which presupposes payment for each stage of the project and is regarded as a put option. The paper also considers realization of the innovation project in accordance with the scheme which presupposes payment of a lump sum after the project completion (without any refund of contractor’s expenses in respect of incomplete project) and is regarded as a call option. The paper contains quantitative estimation of the premium for the actual options which were used in the model. On the basis of the proposed model criteria of investment efficiency of innovation project are formulated in the paper. Application of option strategies for control of innovation project realization has been justified.