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Questions tagged [valuation]

The process of determining the price - the value - of an asset.

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26 views

Fixed Income Products - CQF [on hold]

Does anyone know or familiar with a common Bond Pricing Equation?
3
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1answer
82 views

Quantlib derivative valuation from zero curve

I have newly started with Quantlib-Python for valuing derivatives. In all the examples stated in this bolg or in other places, market quote is inserted and bootstrapping is done via individual rate ...
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0answers
37 views

The relationship between stock holding period and investors’ expected return?

Is there any relationship between stock holding period and investors’ expected return and consequently stocks intrinsic values? Why deriving equilibrium models like CAPM require assumption that stock ...
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2answers
113 views

Bond fund's roll and carry

This is a question about modelling the returns of a bond index. Understand there's quite a bit about the roll and carry of an individual bond, but what about a bond index. Roll I would calculate the ...
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0answers
24 views

Calibration of stock's intrinsic value under the gordon model

Assume we have the constant growth Gordon model, for a stock paying dividend $D$,Earnings per Share $EPS$, annual growth rate $g=ROE*(1-\frac{D}{EPS})$ and discount rate $r$. Then: $IV=\frac{D*(1+g)}...
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16 views

Valuation of convertible bond w/ unlisted underlying

How would I value a convertible bond if the underlying stock is unlisted? If the number of converted common stock is the total par value of the bond divided by the higher of book value of common ...
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0answers
55 views

Hull Martingales and measures problem 27.16 7e?

Here's a question from Hull's Options Futures and Other derivatives which I'd appreciate if someone helped me to clarify. The question is from the chapter "Martingales and Measures" Suppose that the ...
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0answers
48 views

How to Calculate the Value of a Growing Perpetuity Using a State Price Matrix?

Summary I wish to value perpetual cash flows through state contingent claims on real consumption, where the state of the economy is assumed to follow a finite markov chain (Similar to Banz and Miller ...
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0answers
49 views

DCF valuation and the constant WACC assumption

I have a question that has been on my mind ever since I learned about DCF. I was taught that for the DCF to be valid WACC should be constant. As a physicist by training this assumption is strange to ...
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91 views

Why is market cap used to value equity instead of a self consistent solution?

My claim is that if we use the cost of equity of a levered firm via the DCF method then we make errors. Specifically if we find the firm is under-valued then in truth its more under-valued than we ...
3
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1answer
123 views

Rate of convergence between price and value

In my experience, there are two primary methods of alpha generation. In both cases, assume we know what price is. Method 1: Inference on what the price/payoff will be. Method 2: Inference on what ...
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0answers
36 views

Lower barrier knock-out /up-barrier knock-in double barrier option pricing?

I've been studying the valuation of a double barrier option that satisfies the following: If the lower barrier is breached prior to the upper barrier, the option holder gets nothing. If the upper ...
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2answers
93 views

Double knockout binary pricing?

I'm studying the pricing of a Double-Barrier binary option on the price of $S$. By this I mean an option that pays $X$ at maturity $T$ if the lower ($H1$) or upper barriers ($H2$) are not hit during ...
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0answers
405 views

Understanding the “Key Driver Formula” of Valuation

From a textbook on Valuation (Valuation: Measuring and Managing the Value of Companies, Tim Koller, Marc Goedhart, David Wessels, McKinsey & Co.), the "Key Value Driver Formula" is derived as: $$ ...
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0answers
16 views

Inferring a formula for growth from a Valuation Textbook

From a textbook on Valuation, we have that Growth (g) is the rate at which the company's NOPLAT and cash flow grow each year. From this I take it that $$ g = {\text{NOPLAT}_2 - \text{NOPLAT}_1 \...
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1answer
315 views

Tobin's Q calculation using Compustat

I am calculating tobin's Q every quarter using the CRSP/Compustat quarterly dataset. Unfortunately, there are many missing values for the variables used in the tobin's Q formula. for example, if ...
0
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1answer
38 views

Calculating a firm's cost of debt using bond issues

When a firm issues coupon bonds that are traded on the open market these bonds can trade at either a premium or discount during the lifetime of the bond. If, for instance, the bond trades at a ...
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0answers
119 views

CDS Option Pricing

I have been struggling to create a pricing model for CDS Options or CDX Options using VBA. There do not seem to be any examples that specifically refer to CDS that I could follow. From my research I ...
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0answers
71 views

Valuation of a company

Alpha Corp purchases Beta Sub. Alpha Corp finances the purchase price of € 100 million by raising € 50 million in debt and € 50 million in equity issued by Alpha. The debt is risk free and the ...
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1answer
133 views

Transaction multiple EV/LTM EBITDA

Envestnet acquired Yodlee in 2015. I need for this transaction the multiple EV (enterprise value) over last twelve months EBITDA. Can anybody help me with this? In the respective investor relations ...
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0answers
31 views

prudent valuation: concentrated positions exit period

in the context of EBA RTS on Prudent Valuation an institution should calculate additional value adjustments on Concentrated Positions taking into account the period of the time which it will take to ...
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0answers
112 views

negative tobin Q

I am using the Peters and Taylor's Total Q database available from WRDS. Their total Q is similar to Tobin Q except intangible assets are included. They have many negative Total Q.I try calculating ...
1
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1answer
190 views

Floating rate note value approximation

I was hoping somebody can assist me with a query. Would it be a valid approach to revalue a frn with a discount margin from a comparable bond as par minus the difference between the quoted margin and ...
4
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1answer
955 views

Simple example of a funding valuation adjustment?

I'm still a bit confused on how a funding valuation adjustment is actually computed. So I'm looking for a simple example of a funding valuation adjustment, preferably a binomial or discrete model, ...
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1answer
146 views

Why does DCF discount at WACC and not risk-free rate?

Typically, we value 1 dollar at time $T$ at $e^{-Tr}$, where $r$ is the risk-free rate. Why wouldn't we do this for future cash flows in expected earnings for a corporation? Why do we discount at ...
2
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1answer
427 views

How can you determine the correct significance of the Shiller P/E regression?

The "Shiller P/E regression" refers to the regression of real stock market returns over the next 20 years on the Shiller P/E. When I did this OLS regression myself (based on the data from Prof. ...
3
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1answer
150 views

Discounted cash flows for bond valuation: exponential and simplified

At the moment I'm working with a banking system that calculates the discounted cash flows of a bond product in the following manner: It uses the 'regular', exponential way of calculating discounted ...
2
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3answers
135 views

Why aren't option pricing models more frequently used to value risky cash flows?

One way to think of the value of a risky firm is through expected measure theory. On the most basic level, the value of any asset is the convolution of the probability density function of its risky ...
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0answers
720 views

market value of a forward premium swaption

For a cash-settled vanilla interest rate swaption traded with forward premium paid in full at expiry of the option, what should the "mark-to-market" be during the life of the option? Should it be ...
2
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1answer
452 views

Wrong pricing of Asian Option

Issue short: I have values for Asian Options which I'm trying to replicate using a self-build vba calculator. The values I have to hit is from FinCAD and I'm using a discrete arithmetic average rate ...
4
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2answers
161 views

Do underlying assets have a no-arbitrage price?

Can it be shown that the Fundamental Theorem on Asset Pricing (FTAP) applies to underlying assets -- namely bonds, equities, and commodities? FTAP says that assets have no-arbitrage prices equal to ...
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0answers
38 views

Rigorous definition of the two values of a European call

Assume a BS model. For a European call option with strike $K$ and expiry $T$, its intrinsical value at time $t$ is defined to be $(S_t-K)_+$ i.e. the payoff we could get if we immediately exercised ...
8
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1answer
2k views

Forward and discount curves for cross currency swaps

I have a EUR-GBP cross currency swap, collateralised in GBP, each leg is paying 3m EURIBOR/LIBOR respectively. I know GBP leg can be modelled with 3m LIBOR forward curve and GBP OIS discount curve. ...
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1answer
110 views

Possible to use diffusion equation(s) to price derivatives with non-zero boundary conditions?

One of the reason the Black-Scholes can be transformed into the heat equation is that calls and puts have a zero boundary condition on their contingent payoffs. Define the terminal payoff condition ...
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2answers
64 views

How to correctly calculate P/E ratio of Singapore stocks?

I'm calculating the P/E ratio of some International stocks and found a problem. Please look at this paticular stock:Thai Beverage Public Company Limited The p/e calculated by yahoo finance is 31.33. ...
2
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1answer
59 views

How to evaluate companies with different rate of growth rate?

I'm trying to do a value analysis within a group of companies with very different growth rate, here are some method I've explored: P/E ratio. By this measurement most top value companies are those ...
0
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1answer
280 views

Net present value when cash flows accrue continuously and are stochastic

I am trying to find a closed form solution to a stochastic integral -- which is really just a generalized expression for the expected net present value, $E^*[V_t]$, of an annuity (or perpetuity if $T \...
5
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1answer
1k views

Why must a riskless portfolio earn the risk-free rate?

In Options, Futures and Other Derivatives when Hull introduces the risk-neutral approach to pricing European options in the one-step binomial model, he claims that Riskless portfolio must, in the ...
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2answers
270 views

What is the best benchmark index for computing the beta of a multinational company?

I'm running a valuation of a multinational company listed on the AEX (Amsterdam Eurononext). The company has operations in Europe (70%), US (25%) and other (5%). I have historic stock data until from ...
0
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1answer
65 views

S&P P/E Ratio 2008 Spike Explanation

I'm looking at S&P PE ratio chart over time, and there is a large spike around 2008, and I'm trying to understand the reason for this change. Is it simply that earnings declined so sharply that P/...
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0answers
208 views

Funding Valuation Adjustment (FVA) - understanding issues

Having trouble with understanding the logic of FVA. Let's assume that as a trader I trade with a client an uncollateralised fx forward. Then, I hedge my position with "risk-free" bank with which I ...
3
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1answer
166 views

Finding the True Option Value

Many research papers use differing solution methods to attempt to find the 'true' value of an option whether it be Euro, American, etc. They never mention how they do find the true option value to ...
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0answers
21 views

Why does the difference between two year's retained earnings not add up?

I am looking at a company's 10-k filing history for my valuation. I have collected figures for retained earnings, net income and ...
0
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1answer
36 views

Share price after acquisition announcement (specifically QCOM NXP)

Recently it was announced that QCOM plans to acquire NXP in a deal taht values NXP at \$110 per share. In this case I would expect that the shares of NXP should rise up and hit the \$110 mark and stay ...
0
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1answer
835 views

Why does depreciation not show up in my income statement?

I'm looking at a company's 10-K which gives me the following line items: Income statement Net sales Cost of goods sold Gross profit Selling, general and administrative expenses Operating income ...
0
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1answer
167 views

Free cash flows to the firm (FCFF) and no debt [closed]

I have a company with zero interest bearing debt and 10M in cash. Since there is no debt: Am I correct in assuming that the Free cash flows to equity (FCFE) and Free cash flows to the firm (FCFF) ...
1
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1answer
370 views

Swaption Price with Negative Swap Rate

To price Swaptions, I use the Black '76 model. I'm trying to update the model to handle negative interest rates. One such approach to doing this is detailed here. In particular I'm interested in the "...
0
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1answer
746 views

How to trade interest rate futures calendar spread?

This has always been difficult to understand for me. How is the second futures contract valued in relation to the front month contract? My understanding is there are carry considerations (3 more ...
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1answer
108 views

General Framework For Valuing Mortgages

I am becoming more interested in mortgage valuation and would like some pointers on the basic valuation process for a mortgage. I understand there is likely an entire field of study devoted to valuing ...
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1answer
159 views

Valuation of a swap where both parties can cancel (not settle at market) with accrual method instead of present-value?

Consider a single-name total return swap (TRS) on some reference asset $S$. For concreteness, suppose the length of the contract is one year with quarterly resets, and the performance of $S$ is ...