Pharmaceutical patents valuation through real options: Certainty equivalents and utility function

The purpose of this research is to propose and promote the use of real options through certainty equivalents and utility functions as alternative method to value a patent. Uncertainty and flexibility in the decisions making process during the different stages of the research, as well as the investor's particularities, are essential elements of the proposed methodology in order to find the certainty equivalent that provides a range of results to the investor, depending of the investor's attitude before risk. This method was adapted to a case of study regarding pharmaceutical patents of Serono International S. A. to evaluate the option of abandon. Finally, it was found that the proposed model allows to represent the non-diversified investor's preferences in incomplete markets and his/her different attitude before risk. We propose to apply other kind of utility functions in further researches with the intention to compare results.