Page 11 - Intellectual Capitail Management

10

Real Option Theory
Real Option Theory provides an approach which values the opportunities arising from

intellectual capital. A real option is one that is based on non-financial assets and, unlike a
financial option, the underlying asset is non-tradable. It applies the same techniques and

variables as the Black-Scholes model on which financial options are based, but uses
nonfinancial inputs. The term, real option, was coined in 1977 by Stewart C. Meyers of

Massachusetts Institute of Technology. Its earliest applications were in oil, gas, copper, and
gold, and companies in such commodity businesses remain some of the biggest users (Luu et

al., 2001).

The value of the real option depends on the idea developed by the firm’s R&D activity, the risk

of the R&D activity, and the speed with which it is completed and introduced on the market in

relation to similar actions of competitors (Johnson, Neave, & Pazderka, 2001). The goal of

business is to direct the firm’s resources to those activities which provide the highest economic

By : Enas Mekki Managing Intellectual & Human Capital