Consider the example of the valuation of the pharmaceutical R&D project described in the final section of

Question:

Consider the example of the valuation of the pharmaceutical R&D project described in the final section of the chapter. Under the assumptions stated, the DTA value is identical to the ROV value. Calculate what volatility (as modeled in terms of parameters u and d) would make the ROV value differ from the DTA value, and discuss what drives this difference.