Discovering the value of a patent licensing opportunity with a fuzzy binomial model

Most of the methods for estimating the monetary value of patents can be categorized into one of the three conventional discounted cash flow-based approaches, which exhibit two major pitfalls. Firstly, the patent cash flows could not be estimated precisely due to the poor transparency in and the illiquidity of the patent market. Secondly, the value of managerial flexibility which stems from a patent proprietor's right to choose among different patent exploitation strategies could not be systematically revealed through the discounted cash flow analysis. This paper proposes a fuzzy binomial model which is capable of not only assessing the value of a given patent under a fuzzy environment, but revealing the economic value of its inherent managerial flexibility, such as the embedded licensing opportunity.