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Option game with Poisson Jump Process in company radical technological innovation

Author

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  • Daming, You
  • Xiaohui, Yang
  • Wu, Desheng Dash
  • Guofan, Chen

Abstract

Since the 1990s, the trend of companies implementing technological innovation has accelerated so that people pay more attention to new technology development modes completely different from incremental technological innovation of the past — these new modes are collectively known as radical technological innovation. Based on the traditional symmetric duopoly timing option game model, this paper introduces the Poisson Jump Process to describe the impact of radical technological innovation on the market, defines the market impact index of radical technological innovation, and constructs a real option game model for radical technological innovation. It can be seen from the analysis on game equilibrium that a company will have a strong MOTIVATION for implementing radical innovation only when market reaction to its products is moderate. This paper further analyzes this conclusion in an industrial context — namely in growing industries, companies are prone to implementing radical technological innovation due to the existence of additional returns. In addition, this paper analyzes the key parameters in the model to conclude that the market impact index J of radical technological innovation and the Poisson process parameter λ both have a positive impact on both the investment value and investment limit. At the end, a case study is used to validate conclusions of the model.

Suggested Citation

  • Daming, You & Xiaohui, Yang & Wu, Desheng Dash & Guofan, Chen, 2014. "Option game with Poisson Jump Process in company radical technological innovation," Technological Forecasting and Social Change, Elsevier, vol. 81(C), pages 341-350.
    • Handle: RePEc:eee:tefoso:v:81:y:2014:i:c:p:341-350
    DOI: 10.1016/j.techfore.2013.04.012
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    References listed on IDEAS

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    1. Pringles, Rolando & Olsina, Fernando & Penizzotto, Franco, 2020. "Valuation of defer and relocation options in photovoltaic generation investments by a stochastic simulation-based method," Renewable Energy, Elsevier, vol. 151(C), pages 846-864.
    2. Zhao, Rui & Zhou, Xiao & Han, Jiaojie & Liu, Chengliang, 2016. "For the sustainable performance of the carbon reduction labeling policies under an evolutionary game simulation," Technological Forecasting and Social Change, Elsevier, vol. 112(C), pages 262-274.
    3. Or, Bartu & Bilgin, Gozde & Akcay, Emre Caner & Dikmen, Irem & Birgonul, M. Talat, 2024. "Real options valuation of photovoltaic investments: A case from Turkey," Renewable and Sustainable Energy Reviews, Elsevier, vol. 192(C).
    4. Penizzotto, F. & Pringles, R. & Olsina, F., 2019. "Real options valuation of photovoltaic power investments in existing buildings," Renewable and Sustainable Energy Reviews, Elsevier, vol. 114(C), pages 1-1.
    5. Chuan-Chuan Ko & Tyrone T. Lin & Fu-Min Zeng & Chien-Yu Liu, 2018. "Optimum Technology Product Life Cycle Technology Innovation Investment-Using Compound Binomial Options," Risks, MDPI, vol. 6(3), pages 1-14, September.
    6. A. El Hajaji & A. Serghini & K. Mokhlis & K. Hilal & E. B. Mermri, 2017. "Game options approach in company radical technological innovation with generalized poisson jump process," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 4(02n03), pages 1-18, June.

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