Numerical Patent Analysis with the Fuzzy Pay-Off Method: Valuing a Compound Real Option

Numerical analysis for Supporting patent application decisions is a difficult topic due to hardship in estimating the patent future accurately and because patent valuation is most often a problem with multiple stages that can be understood as compound options. We present how numerical analysis of patent exhibiting two major stages can be done by using cash-flow scenarios as input data and a two-stage valuation model based on the fuzzy pay-off method for real option valuation to generate decision-support for deciding whether to go ahead with a patent application or not. We illustrate with a numerical example and discuss the use of the results in decision-support.