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Risks 2018, 6(3), 98; https://doi.org/10.3390/risks6030098

Optimum Technology Product Life Cycle Technology Innovation Investment-Using Compound Binomial Options

1
Business School of City College of Dongguan University of Technology, No. 1 Wenchang Road, Liaobu Town, Dongguan 523419, Guangdong, China
2
Department of International Business, National Dong Hwa University, No. 1, Sec. 2, Da Hsueh Rd., Shoufeng, Hualien 97401, Taiwan
3
Marketing Department, Data Communications Branch, Chunghwa Telecom Co. Ltd., No. 21-3, Section 1, Xinyi Road, Zhongzheng District, Taipei City10048, Taiwan
4
Department of Food and Beverage Management, Jinwen University of Science & Technology, No. 99, Anzhong Rd., Xindian Dist., New Taipei City 23154, Taiwan
*
Author to whom correspondence should be addressed.
Received: 27 July 2018 / Revised: 6 September 2018 / Accepted: 10 September 2018 / Published: 14 September 2018
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Abstract

The study considers the product life cycle in the stages of technological innovation, and focuses on how to evaluate the optimal investment strategy and the project value. It applies different product stages (three stages including production innovation, manufacture innovation, and business innovation) factors to different risks to build a technology innovation strategy model. This study of option premiums aims for the best strategy timing for each innovation stage. It shows that the variation of business cycle will affect the purchasing power under the uncertainty of Gross Domestic Product (GDP). In application, the compound binomial options for the manufacture innovation will only be considered after the execution of the production innovation, whereas the operation innovation will only be considered after the execution of the manufacture innovation. Thus, this paper constructs the dynamic investment sequential decision model, assesses the feasibility of an investment strategy, and makes a decision on the appropriate project value and option premiums for each stage under the possible change of GDP. Numerically, the result shows the equity value of the investment is greater than 0. Therefore, this paper recommends the case firm to invest in its innovation project known as one-time passwords. Sensitivity analysis shows when the risk-adjusted discounted rate r increases, the risk of the investment market increases accordingly, hence the equity value must also be higher in order to attract the case firm’s investment interest. Also, the average GDP growth rate u sensitivity analysis results in different phenomena. The equity value gradually decreases when the average GDP growth rate rises. When the average GDP growth rate u rises to a certain extent, however, its equity value is gradually growing. The study investigates the product life cycle innovation investment topic by using the compound binomial options method and therefore provide a more flexible strategy decision compared with other trend forecast criteria. View Full-Text
Keywords: technological innovation; cloud computing; compound binomial options; investment risk; uncertainty technological innovation; cloud computing; compound binomial options; investment risk; uncertainty
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Ko, C.-C.; Lin, T.T.; Zeng, F.-M.; Liu, C.-Y. Optimum Technology Product Life Cycle Technology Innovation Investment-Using Compound Binomial Options. Risks 2018, 6, 98.

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