The Variance of a Portfolio of Risky Research Opportunities



On Thursday, September 20, 10.30 hours, Sjoerd van Bekkum will defend his MPhil thesis entitled “The Variance of a Portfolio of Risky Research Opportunities”. His supervisors are Prof.dr. Han T.J. Smit, Professor of Private Equity at the Department Business Economics and Dr. Enrico Pennings, Associate Professor of Applied Economics at the Department of Applied Economics both at Erasmus School of Economics. 
This paper contributes to Research & Development (R&D) policy by providing a portfolio selection criterion that can be used in conjunction with synergy and externality criteria. We are concerned with the risk and return characteristics of a portfolio of option-like R&D projects. It is well-known that high risk research projects exhibit option-like risk and returns properties, and differ in that respect from low-risk research projects with stock-like properties, for example in incremental innovation. The success of R&D hinges largely on the capability to deal with these properties in a portfolio context, where the relatedness of projects is of primary importance to a portfolio’s value dynamics. We show that these dynamics are different for high-risk projects with option characteristics and normal-risk projects, and are qualitatively dependent on the correlation between projects. This has implications for hedging strategies and portfolio planning.
Contact information:
Myra Lissenberg - van der Pennen