Valuing Pharmaceutical Drug Innovations

We measure the $\textit{value of pharmaceutical drug innovations}$ by estimating the market values of drugs and their development costs. We rely on market responses to drug development announcements to identify the values and costs. Using data on announcements by firms and their daily stock returns, we estimate the average value of successful drugs at \$1.62 billion. At the discovery stage, on average, drugs are valued at \$64.3 million and cost \$58.5 million. The average costs of the three phases of clinical trials are \$0.6, \$30, and \$41 million, respectively. We also investigate applying these estimates to policies supporting drug development

Multifractal stationary random measures and multifractal random walks with log-infinitely divisible scaling laws

We define a large class of continuous time multifractal random measures and processes with arbitrary log-infinitely divisible exact or asymptotic scaling law. These processes generalize within a unified framework both the recently defined log-normal Multifractal Random Walk (MRW) [Bacry-Delour-Muzy] and the log-Poisson "product of cynlindrical pulses" [Barral-Mandelbrot]. Our construction is based on some ``continuous stochastic multiplication'' from coarse to fine scales that can be seen as a continuous interpolation of discrete multiplicative cascades. We prove the stochastic convergence of the defined processes and study their main statistical properties. The question of genericity (universality) of limit multifractal processes is addressed within this new framework. We finally provide some methods for numerical simulations and discuss some specific examples.Comment: 24 pages, 4 figure

Option Pricing and Hedging with Liquidity Costs and Market Impact

International audienceWe study the influence of taking liquidity costs and market impact into account when hedging a contingent claim. In the continuous time setting and under the assumption of perfect replication, we derive a fully non-linear pricing partial differential equation, and characterize its parabolic nature according to the value of a numerical parameter interpreted as a relaxation coefficient for market impact. We also investigate the case of stochastic volatility models with pseudo-optimal strategies