Valuation of Corporate Intellectual Property Assets Using Options Pricing Theory and Discounted Cash Flow: A Comparison of Two Popular Methods

Many have described the use of Options Pricing Theory, notably the Black-Scholes Options pricing formula, to compute values of intellectual property assets¹²³. When combined with market data, this methodology is becoming increasingly popular⁴⁵⁶⁷. A comparison of the results from this method with the results from the more traditional discounted cash flow (DCF) method of computing values of intellectual property assets has not yet been reported. This study compares the results of these two methods by comparing calculated results for identical sample IP assets and varying one input at a time. Under some defined scenarios, the two methods produce very similar results, while under other defined scenarios, the results obtained from the two methods are quite divergent.