Abstract
The volume of patents held by modern universities is increasing rapidly, causing the expenditure by university patent offices to increase enormously each year. However, these offices do not in general have sufficient budget to cover this work, so need to build themselves appropriate financial strategies. Real option analysis applies financial options theory to quantifying the value of management flexibility in a world of uncertainty. If used as a conceptual tool, it allows management to characterize the strategic value of an investment project. This paper describes the application of real option analysis to the financial strategy of the patent office of a university. The proposed method captures the value of managerial flexibility in the adapting of decisions related to patenting. It also provides a state-of-the-art technique for the valuation of the universities' patent portfolios and associated decision making in respect of strategic investments in their patents.
