Can Financial Engineering Cure Cancer?
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Lo_Can financial.pdf
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454.26 KB
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Author(s)
Fernandez, Jose-Maria
Fagnan, David Erik
Lo, Andrew W.
Stein, Roger Mark
Date Issued
May 2013
Journal
American Economic Review
Publisher
American Economic Association
Citation
Fagnan, David E, Jose Maria Fernandez, Andrew W Lo, and Roger M Stein. “Can Financial Engineering Cure Cancer?” American Economic Review 103, no. 3 (May 2013): 406–411. © 2013 by the American Economic Association
Version
Final published version
Abstract
Traditional financing sources such as private and public equity may not be ideal for investment projects with low probabilities of success, long time horizons, and large capital requirements. Nevertheless, such projects, if not too highly correlated, may yield attractive risk-adjusted returns when combined into a single portfolio. Such "megafund" portfolios may be too large to finance through private or public equity alone. But with sufficient diversification and risk analytics, debt financing via securitization may be feasible. Credit enhancements (i.e., derivatives and government guarantees) can also improve megafund economics. We present an analytical framework and illustrative empirical examples involving cancer research.
MIT Department
Massachusetts Institute of Technology. Operations Research Center
Sloan School of Management
Sloan School of Management. Laboratory for Financial Engineering
Terms of Use
Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use.
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DOI of Published Version
https://doi.org/10.1257/aer.103.3.406
