Design & Development Project Valuation and Investment Decisions -A Real Option Analysis for the Mobile Phone Industry in Korea-

We value design and development (D & D) projects by applying option analysis and draw some important implications for the D & D strategies of the mobile phone producers in Korea. Assuming that the value follows a mixed jump-diffusion process, we show that the uncertainties associated with the D & D project and the development cost are the two key variables to the valuation. In a market where the future outcomes are more unpredictable, our model implies that an aggressive strategy returns more because it keeps more options ( i.e., models in the development process) in the pipeline against the future uncertain states of the world.