Can Financial Engineering Cure Cancer?
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 c...
| Main Authors: | , , , |
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| Other Authors: | |
| Format: | Article |
| Language: | en_US |
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American Economic Association
2014
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| Online Access: | http://hdl.handle.net/1721.1/87773 https://orcid.org/0000-0003-2944-7773 |
| _version_ | 1811092565197324288 |
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| author | Fernandez, Jose-Maria Fagnan, David Erik Lo, Andrew W. Stein, Roger Mark |
| author2 | Massachusetts Institute of Technology. Operations Research Center |
| author_facet | Massachusetts Institute of Technology. Operations Research Center Fernandez, Jose-Maria Fagnan, David Erik Lo, Andrew W. Stein, Roger Mark |
| author_sort | Fernandez, Jose-Maria |
| collection | MIT |
| description | 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. |
| first_indexed | 2024-09-23T15:20:13Z |
| format | Article |
| id | mit-1721.1/87773 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T15:20:13Z |
| publishDate | 2014 |
| publisher | American Economic Association |
| record_format | dspace |
| spelling | mit-1721.1/877732022-09-29T14:17:19Z Can Financial Engineering Cure Cancer? Fernandez, Jose-Maria Fagnan, David Erik Lo, Andrew W. Stein, Roger Mark Massachusetts Institute of Technology. Operations Research Center Sloan School of Management Sloan School of Management. Laboratory for Financial Engineering Fagnan, David Erik Fernandez, Jose-Maria Lo, Andrew W. Stein, Roger Mark 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. 2014-06-13T16:51:02Z 2014-06-13T16:51:02Z 2013-05 2013-01 Article http://purl.org/eprint/type/JournalArticle 0002-8282 1944-7981 http://hdl.handle.net/1721.1/87773 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 https://orcid.org/0000-0003-2944-7773 en_US http://dx.doi.org/10.1257/aer.103.3.406 American Economic Review 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. application/pdf American Economic Association American Economic Association |
| spellingShingle | Fernandez, Jose-Maria Fagnan, David Erik Lo, Andrew W. Stein, Roger Mark Can Financial Engineering Cure Cancer? |
| title | Can Financial Engineering Cure Cancer? |
| title_full | Can Financial Engineering Cure Cancer? |
| title_fullStr | Can Financial Engineering Cure Cancer? |
| title_full_unstemmed | Can Financial Engineering Cure Cancer? |
| title_short | Can Financial Engineering Cure Cancer? |
| title_sort | can financial engineering cure cancer |
| url | http://hdl.handle.net/1721.1/87773 https://orcid.org/0000-0003-2944-7773 |
| work_keys_str_mv | AT fernandezjosemaria canfinancialengineeringcurecancer AT fagnandaviderik canfinancialengineeringcurecancer AT loandreww canfinancialengineeringcurecancer AT steinrogermark canfinancialengineeringcurecancer |