, Volume 91, Issue 1, pp 219–229 | Cite as

Optimal diversification for R&D project portfolios

  • Lieh-Ming Luo


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.


R&D portfolios optimization Risk management Diversification 

JEL Classification

G11 L53 O33 


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Copyright information

© Akadémiai Kiadó, Budapest, Hungary 2011

Authors and Affiliations

  1. 1.Department of Finance & International BusinessFu Jen Catholic UniversityNew Taipei CityR.O.C.

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