The process of determining the price - the value - of an asset.
5
votes
1answer
112 views
Risk neutral valuation independent of $Q$?
This question is bothering me now for a while. Suppose given is a random payoff $f\in L^0(\mathcal{F}_T)$ at time $T$, where $L^0(\mathcal{F}_T)$ denotes the space of all $\mathcal{F}_T$-measurable ...
1
vote
0answers
82 views
Pricing a Power Contract derivative security
I'm trying to price a "power contract" and would appreciate guidance on the next step. The payoff at time $T$ is $(S(T)/K)^\alpha$, where $K > 0$, $\alpha \in \mathbb{N}$, $T > 0$. $S$ is ...
1
vote
1answer
104 views
Exposition of Growth in a Perpetuity
Something that's bugged me since I've ever learned anything about finance: Philosophically(?) speaking, why does growth subtract from a perpetuity's return?
I know the mathematical explanation, but ...
-5
votes
2answers
268 views
Calculate a discount rate given a PV at some point in the future [closed]
Repost from CrossValidated...
I am trying to calculate a 24-month Customer Lifetime Value for a hypothetical magazine subscription service. CLV is typically calculated as the summation of the present ...
10
votes
1answer
305 views
Creating an n-factor Certainty Equivalent Discounting Formula
Brealey & Myers provide a certainty-equivalent version of the present value rule, using CAPM, as follows:
$$PV_0=\frac{C_1 - \lambda_m *cov(C_1, r_m)}{1 + r_f}$$
$PV_0$ - Present Value of cash ...
4
votes
2answers
253 views
Which interest rate should I use for the discount rate in real-world pricing?
Suppose I want to compute the time value of money (present value, future value, etc). I need to put an interest rate into the calculation.
Which real world interest rate would best be used here, ...
3
votes
1answer
207 views
Value of option-free instruments with a short-rate model vs the spot curve
You can calculate the value of an option free bond or swap by using the spot curve and discounting cashflows accordingly. Alternatively, apparently you can use a single-factor short rate model in a ...
5
votes
1answer
688 views
How would I value a perpetual bond with an embedded option?
I am trying to work out how to value the following transactions. It should be straight forward, since it breaks down into a series of well known instruments, yet I am not sure how to evaluate it:
...
6
votes
1answer
232 views
Can options volume have an impact on the price of the underlying asset?
Can options volume affect the underlying asset price indirectly? I know that options buying/selling does not directly affect the price of the underlying asset (rather, the asset price contributes most ...
9
votes
4answers
100 views
Are there any valuation models of securities that use hyperbolic discounting?
To quote Wikipedia:
In hyperbolic discounting, valuations fall very rapidly for small delay periods, but then fall slowly for longer delay periods. This contrasts with exponential discounting, in ...
4
votes
2answers
152 views
How do earnings estimates respond to changes in underlying fundamentals and economic conditions?
Sell-side analysts' earnings estimates for individual companies, typically reported by I/B/E/S, are a key ingredient to many quantitative models. However, revisions to analyst estimates tend to lag ...
6
votes
1answer
259 views
Which valuation measures are most useful for equity market timing?
Competing academic studies, such as Asness's Fight the Fed Model and Lee, Myers, and Swaminathan's What is the Intrinsic Value of the Dow, offer differing answers to the question of whether equity ...
7
votes
1answer
632 views
What are some quantitative approaches to value investment?
As a developer and statistician, I consider value investing to be a statistically sound investment strategy. I've read a few books on the area but I am still not clear on valuation measures. So I ...
5
votes
2answers
489 views
Credit Valuation Adjustments — computation issues
I'm currently working on my Masters project related to accelerating Greeks computations for CVA on mixed interest rate portfolios. I would like to know about the status of technology for CVA and its ...
8
votes
3answers
4k views
Rationale for OIS discounting for collateralized derivatives?
Can someone explain to me the rationale for why the market may be moving towards OIS discounting for fully collateralized derivatives?
12
votes
2answers
614 views
What are the limitations of Gaussian copulas in respect to pricing credit derivatives?
The practice of using Gaussian copulas in modeling credit derivatives has come under a lot of criticism in the past few years. What are the major arguments against using the copula method in this ...
11
votes
3answers
359 views
How are prices calculated for commercial/residential mortgage-backed securities?
What is the theoretical/mathematical basis for the valuation of [C]MBS and other structured finance products? Is the methodology mostly consistent across different products?
