A fuzzy approach for R&D compound option valuation

This paper is devoted to propose a random fuzzy methodology in order to value R&D investments combining the stochastic approach with the fuzzy analysis. As it is commonly known, an R&D project is characterized by a sequential phase in which each phase gives to the manager the opportunity to realize or not the investment. So, in real option world, this opportunity can be analyzed as a compound American exchange option (CAEO). In this paper, the fuzzy approach is used to model two important parameters of R&D evaluation: the volatility of asset V and the opportunity costs of deferring project δvδv. Therefore, we present a γ-level of fuzzy prices of CAEO and the fuzzy mean value of CAEO using a pessimistic–optimistic weight