The optimal allocation of the investment capital for R&D projects at the commercial stage with the Kelly criterion

Strategic investment projects such as research and development (R&D) projects generally require a huge amount of initial capital over a long period of time. To effectively manage them, project managers need to pay a careful and prudent attention on an economic justification process at the outset, especially the optimal allocation of the investment resources on them. In this paper, we propose the methodology to determine the optimal ratio of investment capital in the R&D projects. The methodology is established based on the Kelly criterion combined together with real options valuing (ROV) theories for the commercial stage of the R&D projects.