The Real-Options Approach to Intellectual Capital Analysis: A Critique

The real-options paradigm serves as a new platform in the evaluation of intellectual capital assets. A prominent case of real-options applications in intellectual capital is R& D investment, since R&D constitutes a major part of a firm's structural capital as well as a major field of realoptions applications. First, we describe the real-options approach to the evaluation of R& D investment, focusing on modelling assumptions and the pricing approaches. We then present an extensive account of the opportunities that the real-options analysis lends to intellectual capital quantitative methods. We also study the issues that need to be tackled so that the quantifying norms of real options can be adapted to complex features of the real-world business environment. Copyright (C) 2005 John Wiley & Sons, Ltd.