16. (Lecture Note 9) Film rights are rights under copyright law to produce a film as a derivative work of a given item of intellectual property. In US law, these rights belong to the holder of the copyright, who may sell (or option) them to someone in the film industryusually a producer or director, or sometimes a specialist broker of such propertieswho will then try to gather industry professionals and secure the financial backing necessary to convert the property into a film. Such rights differ from the right to commercially exhibit a finished motion picture, which rights are usually referred to as exhibition rights or publicperformance rights. Wikipedia. Sam PeckinPaw owns the right to produce the next installment of the horror film franchise Alien. The Internal Revenue Service (IRS) has hired you as a financial consultant to estimate the value of this right as part of their effort to sell Mr. PeckinPaws assets to cover back taxes that he owes to the IRS. You estimate that the value of the completed film, , follows geometric Brownian motion with drift and volatility , and the cost of exercising the right to produce the film is . For your information, is the present expected value of the anticipated box office receipts for the movie and includes the cost of hiring actors, set crew, and production staff, along with all the other expenses that go into producing a film. There is a lawsuit disputing Mr. PeckinPaws ownership of the right to produce the next Alien film by an investor group claiming that he lost the right when he backed out of a contract with the investor group. Assume that success of the lawsuit for the investor group follows a Poisson process. Thus, with probability the group wins the lawsuit and the rights are worth zero 10 to Mr. PeckinPaw (and the IRS) and with probability 1 the rights are retained by Mr. PeckinPaw. Answer the following questions. a. Compute the value of Mr. PeckinPaws right to produce the next installment of Alien. Assume the right has infinite maturity (subject to being lost in the lawsuit) and may be exercised at any time. Further, assume the economy is risk-neutral and the instantaneous risk-free rate of interest is . Your answer should include the solution for the value of the right, (; ), and the optimal exercise policy for the right, . b. Using your answer in part a. for (; ) and , compute the dollar value for the right. This is an estimate of the amount the IRS can get for the right if it is sold in the market. Assume = $100,000,000, I = $100,000,000, = 0.03, = 0.30, = 0.05, and = 0.30.

16. (Lecture Note 9) Film rights are rights under copyright law to produce a film as a derivative work of a given item of intellectual property. In US law, these rights belong to the holder of the copyright, who may sell (or "option") them to someone in the film industry-usually a producer or director, or sometimes a specialist broker of such properties who will then try to gather industry professionals and secure the financial backing necessary to convert the property into a film. Such rights differ from the right to commercially exhibit a finished motion picture, which rights are usually referred to as "exhibition rights" or "public- performance rights". Wikipedia. Sam PeckinPaw owns the right to produce the next installment of the horror film franchise "Alien". The Internal Revenue Service (IRS) has hired you as a financial consultant to estimate the value of this right as part of their effort to sell Mr. PeckinPaw's assets to cover back taxes that he owes to the IRS. You estimate that the value of the completed film, S, follows geometric Brownian motion with drift a and volatility , and the cost of exercising the right to produce the film is I. For your information, S is the present expected value of the anticipated box office receipts for the movie and I includes the cost of hiring actors, set crew, and production staff, along with all the other expenses that go into producing a film. There is a lawsuit disputing Mr. PeckinPaw's ownership of the right to produce the next Alien film by an investor group claiming that he lost the right when he backed out of a contract with the investor group. Assume that success of the lawsuit for the investor group follows a Poisson process. Thus, with probability dt the group wins the lawsuit and the rights are worth zero to Mr. PeckinPaw (and the IRS) and with probability 1 - dt the rights are retained by Mr. PeckinPaw. Answer the following questions. a. Compute the value of Mr. PeckinPaw's right to produce the next installment of "Alien". Assume the right has infinite maturity (subject to being lost in the lawsuit) and may be exercised at any time. Further, assume the economy is risk-neutral and the instantaneous risk-free rate of interest is r. Your answer should include the solution for the value of the right, F (S; S*), and the optimal exercise policy for the right, S*. b. Using your answer in part a. for F(S; S*) and S*, compute the dollar value for the right. This is an estimate of the amount the IRS can get for the right if it is sold in the market. Assume S = $100,000,000, I = $100,000,000, a = 0.03, = 0.30, r = 0.05, and = 0.30. 16. (Lecture Note 9) Film rights are rights under copyright law to produce a film as a derivative work of a given item of intellectual property. In US law, these rights belong to the holder of the copyright, who may sell (or "option") them to someone in the film industry-usually a producer or director, or sometimes a specialist broker of such properties who will then try to gather industry professionals and secure the financial backing necessary to convert the property into a film. Such rights differ from the right to commercially exhibit a finished motion picture, which rights are usually referred to as "exhibition rights" or "public- performance rights". Wikipedia. Sam PeckinPaw owns the right to produce the next installment of the horror film franchise "Alien". The Internal Revenue Service (IRS) has hired you as a financial consultant to estimate the value of this right as part of their effort to sell Mr. PeckinPaw's assets to cover back taxes that he owes to the IRS. You estimate that the value of the completed film, S, follows geometric Brownian motion with drift a and volatility , and the cost of exercising the right to produce the film is I. For your information, S is the present expected value of the anticipated box office receipts for the movie and I includes the cost of hiring actors, set crew, and production staff, along with all the other expenses that go into producing a film. There is a lawsuit disputing Mr. PeckinPaw's ownership of the right to produce the next Alien film by an investor group claiming that he lost the right when he backed out of a contract with the investor group. Assume that success of the lawsuit for the investor group follows a Poisson process. Thus, with probability dt the group wins the lawsuit and the rights are worth zero to Mr. PeckinPaw (and the IRS) and with probability 1 - dt the rights are retained by Mr. PeckinPaw. Answer the following questions. a. Compute the value of Mr. PeckinPaw's right to produce the next installment of "Alien". Assume the right has infinite maturity (subject to being lost in the lawsuit) and may be exercised at any time. Further, assume the economy is risk-neutral and the instantaneous risk-free rate of interest is r. Your answer should include the solution for the value of the right, F (S; S*), and the optimal exercise policy for the right, S*. b. Using your answer in part a. for F(S; S*) and S*, compute the dollar value for the right. This is an estimate of the amount the IRS can get for the right if it is sold in the market. Assume S = $100,000,000, I = $100,000,000, a = 0.03, = 0.30, r = 0.05, and = 0.30