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Optimal diversification for R&D project portfolios

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Abstract

Diversification of R&D projects not only can reduce overall risk, but also can create value-enhancement effect. A useful guideline for optimal diversification of R&D projects is important to R&D organizations. This paper extends financial portfolio analyses for R&D management particularly incorporating the technology risk. This study uses a survival model to describe the technology risk since termination of an R&D project can be caused by any technology risk factors. A formula of optimal R&D resource allocation that can dynamically achieve the greatest diversification effect is offered. Furthermore we provide an alternative method for estimating correlations between R&D portfolios, which has a critical influence on diversification effect. The method can be useful in risk assessment when measure the exposure of R&D portfolio to particular sources of uncertainty. The evaluation framework for R&D portfolios optimization also can be applied in project-selection decisions.

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Authors and Affiliations

  1. Department of Finance & International Business, Fu Jen Catholic University, 510, Chun-Cheng Rd., Hsinchuang, New Taipei City, 24205, Taiwan, R.O.C.

    Lieh-Ming Luo

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  1. Lieh-Ming Luo
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Correspondence to Lieh-Ming Luo.

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Luo, LM. Optimal diversification for R&D project portfolios. Scientometrics 91, 219–229 (2012). https://doi.org/10.1007/s11192-011-0537-0

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  • DOI: https://doi.org/10.1007/s11192-011-0537-0

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