The Value of Market Research When a
Firm is Learning: Real Option Pricing and Optimal Filtering
N. Mayor, P. Schonbucher, P.Wilmott, A.E. Whalley, D.
Epstein
Abstract
In this paper we model the value to a firm of
undertaking market research into a particular product opportunity. The way
in which information about the potential of the project arrives and
knowledge evolves during the life of the project is modeled using the
theory of optimal filtering. The value of the project and optimal entrance
decision rule is then derived as the solution to a partial differential
equation, using boundary conditions which reflect the structure of the
project.
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