Questions tagged [valuation]

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

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1answer
91 views

Impact of fixing on the valuation of derivatives

I would like to know what is the impact of a fixing on the value of a fixed vs floating interest rate swap (IRS). Also, I have the same question about the fixing impact on a cross currency swap? On a ...
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19 views

Should diverging valuation multiples affect beta estimate?

Suppose we experience a significant equity market crash. All equities are affected, but the drawdown disproportionately affects equities in a specific sector - for example, say the broad equity market ...
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28 views

Option Valuation With Hard To Borrow Rates

How would you include -in a simple way- high borrow rates, say 10%. Intuitively, for PUTs I'd set r as r - borrow_rate, to include the negative carry of the borrow. So If I'm selling puts, value would ...
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42 views

Is a company's exact debt structure publicly available to investors?

I am relatively new to investing and would like to look into some of the details of a few companies. As one example, we can use DAL. To assess the financial future of the company, it would be ...
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1answer
133 views

Valuation of Variance Swap

Let say I have a Variance Swap contract which is based on daily closing prices (not the continuous variance calculation) and will last between the day interval $T_1$...
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1answer
82 views

Cox-Ingersoll-Ross: Monte Carlo Simulation

I am trying to build a Monte Carlo simulation in Excel (yes, far from optimal) for valuation of a callable bond. I have some experience with MC simulation on path dependent derivatives with stocks as ...
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63 views

Is there some sort of index of products, their description, and pricing?

I'm imagining some sort of site where you can look up all sorts of products that are traded (swaps, bonds, options, and all the variations that they exist in), and then the site gives an extremely ...
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1answer
146 views

PV of the Floating Side of an “Overnight Index Swap” (at the fixing Date)

I have a mathematical / theoretical question regarding the PV of an Overnight Index Swap (Floating Side) at the time of fixing. Starting from this question: How to compute Overnight Index Swap (OIS) ...
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40 views

Spread sensitivity of TRS

I am about to understand the valuation of a TRS. The approach I am applying derives risk neutral survival / default probabilities from the ratio between risk free and spread adjusted rates and uses ...
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56 views

What are the most difficult/computationally expensive/infeasible derivatives to price?

I'm not sure if this question has a concrete answer or if it's more of a fun game, but I suppose the question that does have a concrete answer is what's the most difficult instrument to value that has ...
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18 views

Pricing a TRS using the Projected method for the financing leg and the Accrual method for the asset leg

I've been wandering if would be possible to value a TRS I have in an unusual way. I would like use the accrual method for the asset leg, since the the asset leg is a long position in an equity and it ...
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1answer
51 views

Trying to code Haug's 4.19.7 Double-Barrier Binary Asymmetrical

The following Clojure code correctly outputs the table in section 4.19.6 of "The Complete Guide to Option Pricing Formulas", but I'm wildly out on the asymmetrical in 4.19.7. ...
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37 views

Discounted Cash Flows in Excel

I'm taking an online class on stock valuation. In my class, the instructor calculated stock intrinsic value using XNPV function in Excel. While I understand this part, I don't know why it gives a ...
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88 views

In an interest rate swap, is the first payment based on the floating and fixed values set at inception?

Let assume 2 parties agree a plain vanilla swap with the following terms: Notional: $100,000 Length/Tenor: 3 year Payment/Settlement Periods: Annual Start Date: 01/01/2021 Floating Rate on Start ...
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11 views

Finding share class values in a complex ownership and capital structure

I’m curious about how you would deal with the following situation. The company is a startup with a complex ownership and capital structure. Any links or resources on these subjects would be greatly ...
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1answer
63 views

The extent of the usage of DDM formula by the big boys

I am wondering to which extent versions of the DDM formula(https://en.wikipedia.org/wiki/Dividend_discount_model) is used by large banks and institutional investors etc, in some sense anyone who is ...
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1answer
82 views

How to price complex corporate actions with spinoffs

Let's look at below UTX/RTN merger as an example: https://www.fool.com/investing/2020/03/30/raytheon-united-technologies-merger-gets-green-lig.aspx The merged companies will from that moment ...
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91 views

Discount margin on FRN - widening but bond price increasing?

Why would a bonds discount margin widen but its price increase? Shouldn't the price be falling when margins are widening? Looking at the bond pricing formula, if the price is higher doesn't the rate ...
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2answers
65 views

How to compute a portfolio value?

I am learning fundamentals of option market and ran into an example I do not understand : Let's assume I have a portfolio of 3 shares priced \$22, and a European call option to buy a share for \$21 ...
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78 views

Quant valuation of a credit card debt (or flexible loan)

What would you say is the generally accepted quantitative method of valuing an individual credit card, or flexible loan? Is the method very changeable if that were a pool of such loans? Suppose the ...
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1answer
73 views

Valuing Acquisition Target Case Study - DCF and IRR?

Wondering how best to answer a case study I need to do. Case study info as follows: Given Selling company's P&L (3 years actual, 4 years forecast) - closing date on end of year 3 - and a PPT of ...
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111 views

Modelling NPV with negative cashflows?

When making capital investment decisions that have cost saving implications instead of cash flow generation, is NPV still valid? For example: A state wishes to decide whether to replace a section of ...
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49 views

Risk neutral valuation logic/intuition

I was reading on risk neutral valuation and i ran into this statement "according to the law of one price , if you have two assets with identical expected cash flow , their current prices must be the ...
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1answer
55 views

Valuing interest tax shield with constant rate of loan redemption

A $D=\$30mm$ loan at $r_D = 6.5\%$ and a tax rate of $\tau_c=40\%$ yields an annual tax shield of $$TS=D*r_D*\tau_c=\$0.78mm$$ If $\rho=5\%$ of the loan remainder in the current year is to be payed ...
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35 views

Residual Income Valuation with Term Structure

I'm implementing a residual income model (RIM) to value stocks as described by Ohlson. https://pdfs.semanticscholar.org/c0a5/4ef41311951fe406d15cd7d7ce19502cdc7c.pdf The key to this model is ...
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20 views

Share Repurchase Impacts in Abnormal Earnings Growth Model (AEG)

I am implementing an AEG model based off Ohlson (2005). The formula is as follows: $$ V_0 = \frac{E_t}{k} + \sum_{t=1}^n{\frac{1/k * (E_{t+1} - (1+k)E_t+kD_t)}{(1+k)^t}} $$ I'm debating how share ...
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1answer
44 views

Security Analysis By Benjamin Graham Example Doubt [closed]

So I was reading (trying to read) Security Analysis by Graham and I came across this example ("Example 1" in the image attached below) Being the noob at finance and quant that I am, I was unable to ...
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2answers
148 views

NPV and efficient market hypothesis

If I have an opportunity of investment, let's call it investment (A), that costs $I$ in year 0 and gives me $CF_1$ in year 1, I will accept it only if $NPV>0$ $NPV = -I + \dfrac{CF_1}{1+k} > 0$ ...
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1answer
73 views

How to calculate performance of a private equity investment?

Say an investment fund puts \$1 million into private equity investment in 3 installments (\$500k, \$250k, \$250k). You're given a data table which shows the date, contributions (\$500k, \$250k, \$...
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35 views

Which quantitative approaches recommended to buy NKE in 1985? [closed]

This is a historical quantitative finance question. Here is the NKE annual report from 1985. This company increased in value 500 times from 1985 to 2015. Please advise on quantitative finance ...
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94 views

Pricing of European put option with binomial model

This is an exercise from Mark Joshi's book (exercise 3.6): A stock is worth 100. Each month its value increases or decreases by precisely 10. The riskless bond is worth $e^{rt}$ at time t years with ...
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78 views

DCF Valuation Models

Does anyone know of any websites that have sample models or mind sharing their DCF models? Trying to get started modeling and can't seem to find many great resources. I know of Damodaran, but his ...
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181 views

Interest rate swap valuation date convention

When we value interest rate derivatives on any date $t$, we can estimate our future payments using some calibrated forward curve $f_s$, where $s$ is the spot date, and discount these back to $t$ using ...
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39 views

Possible to have different collateral for each party?

Normally bilateral credit support annexes would have both parties post/receive the same collateral be it US treasuries or cash etc. Are there CSAs Where each party has a different set of eligible ...
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61 views

Newbie question on Net Present Value with Constant Growth

Newbie here, trying wrap my head around on why this doesn't add up: Calculating the discounted cash flow of a perpetuity paying $1000 per year, 15% discount rate and 5% growth. If I calculate from ...
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1answer
137 views

Covered Interest Rate Parity with FX Spot-Adjustment

The Covered Interest Rate Parity for FX is often quoted simplistically as $$ X_T \quad=\quad X_S \cdot \frac{D^{base}_T}{D^{quote}_T} $$ where $X_t$ is the (projected) FX rate at time $t$ (denoted as $...
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1answer
184 views

Pricing under risk-neutral probabilities for weird derivatives?

I would really appreciate some help to value a weird derivative that I've found in an assignment: $$ X=(S_{T_1}-k)^{+} = \max(S_{T_{1}}-k;0) $$ which expires at time $T_{2}$ and uses the price at ...
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46 views

Theoretical justification for why estimating intrinsic value of a stock price can be different under FCFF and FCFE approaches?

what is the theoretical justification for why estimating intrinsic value of a stock price can be different under FCFF (Free Cash Flow to the Firm) and FCFE (Free Cash Flow to the equity) approaches? ...
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1answer
51 views

Transactional costs for shipping in % based on futures market price

Real case: Imagine I want to move an oil from one terminal to another. I have about 20 +/- tanker companies, but all of them have max capacity on their top deadweight (DWCC) vessel about ...
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71 views

Logic behind calculating a Carry Multiple associated with Startup Valuation [closed]

I'm reading a book called "The #1 Guide to Startup Valuation: How to value your startup in 12 easy steps" (p. 22-23) by Joachim Blazer. As one of the building blocks, namely "Return&...
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1answer
126 views

IPO Valuation: Share Pricing and Number of Shares

Does the number of shares matter for a company to go public? Suppose a company ABC went public and the initial valuation of the company shares to be sold stands at \$5000. Now, it can sell 1000 ...
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1answer
48 views

Sum disappearing when we assume constant some elements to be constant over time [closed]

I have the dividend discount model, which is the following expression: $$ P_{j,t} = \sum_{\tau=1}^{\infty}D_\tau(1+g)^\tau(1+r)^{-\tau}=\frac{D_{\tau+1}}{r-g} $$ Where $D_t$, is the dividend at time ...
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1answer
459 views

Comparing Values of 5s and 7% Notes (Security Analysis by Benjamin Graham)

I was reading Security Analysis by Benjamin Graham (Sixth Edition). Page 63, last paragraph says: A third kind of analytical conclusion may be illustrated by a comparison of Interborough ...
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1answer
145 views

Neural Networks for Estimation of Unmarked Private Asset Returns from Market Data

Let's assume it is March and my illiquid private assets portfolio is only 50% marked for 12/31, but I want to get the most accurate estimate of my final return for the quarter ended on 12/31. What is ...
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1answer
143 views

Volatility surface tenors

I don't think this has been asked before, but are the tenors on a volatility surface out of spot date for the currency pair or out of value T+0?
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2answers
492 views

Why use par-value weighted average when valuing portfolio of bonds?

I'm looking at a formula for valuing a portfolio of different bonds that sums the market value times the par value for each bond. Conceptually, why are the bond values weighted in this way by their ...
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861 views

Full Revaluation vs Factor-based Model for risk management

I am looking for literature on comparison of these two approaches. It looks like many places are using some type of Factor-based Model (Barra, Axioma, Northfield, etc.) for risk management purposes. ...
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1answer
83 views

Discounted free cash flow valuation

I started valuating company based on their free cash flow by using DCF valuation.But for some companies i came across negative free cash flow for all years. How can we evaluate company with negative ...
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1answer
75 views

Gordon's dividend valuation model: Ignoring optionality

Currently studying some papers on Behavioral Finance (the dividend puzzle), which employ some basic valuation models, calculating stock's fundamental value $P_t$. The most known is the discount of ...
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1answer
5k views

Valuation of repurchase agreement (classic repo)

From my understanding, a classic repo is an agreement for one party to get cash by placing collateral at a certain price and then get the collateral back at maturity by paying the initial cash plus ...