Questions tagged [valuation]
The process of determining the price - the value - of an asset.
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Floating side value of a swap [duplicate]
I have some trouble to understand on valuing the floating side of a swap.
In my book, the value of floating side at the time t is;
$$ P(t,T_0) - P(t,T_n) $$
Where $$ P(t,T_n)$$ denotes the value of ...
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Valuation via decomposition or via simulation of the underlying?
My question might be very straight forward but I have seen both approaches being followed in practice so I am curious to see if there are arguments in favor or against each one. I am explaining my ...
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Non-stationarity and repricing as a source of idiosyncratic and systematic "risk"?
1.Assuming a one period economy with two assets in which cash flows are assigned certain probabilities, using the CAPM, we can derive the P0 given the E(CF) at t1. Within this distribution, we have ...
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Why do we need an ex-dividend date? [closed]
Why do we need an ex-dividend date? What is the problem with the ex-dividend date being the same as the payment date? Why are they separate? What problem does having a separate ex-dividend date solve?
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How to approximate a function in the H-model
I have been looking to understand the H-model in finance, that is used for stock price valuation. In particular, I wanted to formally derive the final formula:
$$PV=\frac{D}{r-g_2}\left[1+g_2+\frac{H}{...
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In traditional asset pricing and valuation, why does the cost of equity increase with the AMOUNT of leverage but not with DEFAULT RISK? [closed]
When a firm's default risk increases, the cost of debt obviously rises, which increases the WACC and decreases firm value. However, what happens to the cost of equity in this case? Has the proportion ...
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Pricing various classes of derivatives and replicating them
Consider the following three derivative styles and assume zero dividends for simplicity.
The "american style", "european style", and "infinite" style:
$$L_{A}(S,K,t,T)=f(...
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Pricing Convertible Bond's Equity Portion Workaround
We're working on the stress test of Convertible Bond which requires us to compute the loss when the price of CB changes.
For a quick workaround, we retrieve bond floor and option value from Bloomberg ...
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Calculate PE ratio of equal-weighted index
I need to calculate Price-to-Earnings Ratio (PE Ratio) of an Equal-weighted index.
...
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For derivatives pricing, does FEM actually ever outperform FDM?
Simple question that I was wondering about over during the weekend.
I have done a little FEM during the last years and my university time and did not spend a lot of time with FDM. For a new job I have ...
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How can I correctly assess the risk of real estate debt fund? [closed]
I'm trying to assess the attractiveness of real estate debt funds. I'm very surprised when I look at the investment performance of many of those funds. Many of them have no negative returns, and can ...
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Conceptual problem with risk neutrality-What is a 'risk-neutral world', exactly?
I have persistent, deep problems with the concept of 'risk-neutrality'. To make it more precise, let's look at the following explanation taken from a book:
"In a world where investors are risk ...
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What is the meaning of Domestic Exchange Rate here?
So I have the following formula for the Pricing of a Quanto Option (see image below).
While I understand this formula pretty well, I am not sure what is referred to as "domestic exchange rate&...
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Monthly and annual arithmetic mean in valuations? [closed]
I know this is back to basics but I am perplexed by it!!!
Assume that the future value (FV) of an investment at the end of year 1 is 112, the annual arithmetic expected return is 12%, hence the ...
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How xVA is applied to determine final price
Typically, the Actual price is derivative transaction (e.g. Swap) is sum of Base price and xVA e.g. cVA.
Where Base price is analytical price with consideration of standard parameters e.g. risk free ...
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Expected vs required return in valuation
This is a rather simple question, so this is maybe not the right place, but...
I have done quite a bit of reading on predicting asset returns, i.e. determining return expectations. I have now started ...
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Pricing of constant leverage certificates
I am trying to value the open-ended constant leverage certificates like Bull DAX 20x. As the certificates are reset daily with the movements of the underlying asset, how could they be modeled for ...
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Market value of futures [closed]
What is the market value of an (index) futures?
I guess the market value is either:
quantity * contract size * price
zero, if the daily unrealized PnL is ...
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Balance Sheet Value of a Repo
I am relatively new to repos and I am trying to find out whether there is a standard practice for calculating balance sheet value of a repo. Are there any regulations that prescribe how banks shall ...
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Interest rate swap Profit and loss attribution
I am wondering how the IRS daily PnL will normally be attributed from trader's/market risk perspective.
Will it be broken down into three parts daily carry (Daily interest accrual), daily roll-down (...
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How to use coherent risk measure for evaluating price?
Coherent risk measures are defined by number of axioms (see e.g. Coherent Risk Measure) but a question that does not seem well studied is how to use them.
Let's take a coherent risk measure $\rho$ and ...
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How to fundamentally value cryptocurrencies?
Investing in cryptocurrencies is a wild ride. There is obviously a lot of speculation involved but my question is another one: what are good models to evaluate the fundamental value of ...
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How would the following be priced?
Suppose we introduce the following: a token S with an initial supply of a 1000. At $t_0$, a 1000 different parties $P_1,\dots,P_{1000}$ each buy a single token for $1$\$.
Whoever has the most tokens ...
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Determine if stocks are hurt by rates or recession fear
Looking at a portfolio of growth stocks which traded at high multiples until end of last year.
Stocks have been underperforming (no surprise there) but I'm trying to find ways to determine, ...
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Bond value as a function of spread change and duration/maturity
I am trying to calculate the change of value in a universe of bonds given a series of shocks to the credit spread of each bond. As a constraint, the initial dataset only contains the spread change for ...
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Valuation of companies, which belong to each other
There are three companies: A, B and C.
A fully belongs to B, B fully belongs to C and C fully belongs to A.
Company A has USD 1 mln of cash and no debt.
Company B and C each have USD 10 mln of cash ...
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What is the name and payoff of this exotic option (where the holder can lock in a price)?
An exotic option is described as follows:
Let $S_t$ be the underlying at $t$. The holder has the option to lock
in the current price during the lifetime of the option, which he does for $S_{t}=50$. ...
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Between these bonds, how to find out which is one pricey (Higher valuation) and cheap (Lower valuation)?
Trying to understand, how to find out which of these bonds are cheap and which are expensive?
The current spot rate is 8.167%. How do I go about finding the cheap vs expensive bonds especially when ...
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Valuation discount rate using risk free interest rate versus inflation rate
Imagine a world where, for a given time period, the expected inflation rate is 10%, but the nominal risk free interest rate over the same period is 5%.
Should my starting point - from a discounted ...
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Infering the discounting rate for an illiquid company
Let's say I would like to determine the incremental discounting rate (e.g. as in IFRS-16) for a company $X$ with a rating score of $Y$ and belonging to a sector $Z$. Usually, any data provider such as ...
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Valuation of chooser options
The below formula for valuation of chooser options from Hull's book is not making sense to me.
Why do we use call value at time T=0 while we use put value using t=0 call value and discount strike and ...
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Expected return over what time horizon?
In finance, it is common to price things at their discounted expected value.
What time horizon is the market generally thought to consider?
Is it a "money-weighted" average of expected ...
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How to attribute daily options P&L between Greek sensitivities [duplicate]
When building a P&L attribution system for options, what is the market convention for attributing daily P&L between delta, gamma, vega, and theta Greeks? I'm particularly interested in how ...
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Are Accounts Receivable and Accounts Payable already included in revenue?
I've been following this Udemy course on finance and valuation basics (Link). I am particularly confused when it comes to the cash flow statement part, specifically on how to get Operating Cash Flow (...
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Floating rate bond valuation and Duration
I would like to know how a floating rate bond will be valued when LIBOR is used to compute the coupon cashflows and the bond is discounted using an OIS rate. Normally I have seen valuation of a FRB ...
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Using a Swap curve to price Interest rate Swaps
Say we have a 3-m LIBOR IRS (interest rate swap) with quarterly fixed payments (2 year contract), and we want to value this contract (after say 6 months has passed, i.e. there remain 1.5 years to ...
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Which Risk Free rate to use?
I am trying to value a food and beverage company using DCF. I have forecasted the short term projections for 10 years and calculated a terminal value there after. But I am confused with which risk ...
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Total Return Swap on Single Govt Bond Marked to Market Calculation
Looking to understand how to value a TRS on single 10y UST during the life of the trade. Here is an example of trade parameters.
10mm constant notional
1-year maturity
I am performance leg payer / ...
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Work out example of Valuation adjustment
Currently, there are many valuation adjustments for the fair price of a derivative instrument, when pricing is based on RFR. One of such adjustment is ...
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How to handle cash from financing in a DCF model? [closed]
I am building a valuation model for a public pre-revenue company (biotech). The company is going to have ~$600M in R&D and SG&A expenses over the next 4 years, which it is going to finance ...
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How to reconcile CAPM with Discounted Cash Flows valuation?
According to CAPM (in its most basic form) our asset allocation will only depend on the expected returns and the covariance matrix of returns. If we also consider the risk-free asset and assume that ...
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Initial value of an investment project in a binomial real option valuation model
How do you measure the initial value of a project in a binomial tree ROV? I'm not specifically working in the valuation scene, but sort of had an interest in how the models work logically. It's not ...
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Are there any APIs to retrieve stock buybacks and dividends to calculate ERP?
I'm in the process of building a Python library to value stocks using a FCF model and one of the first steps is calculating an implied equity premium. I know there a few ways of doing this, but ...
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Global stock market valuations
I am looking for reasonably up to date resources on global stock market valuations by country, using e.g. CAPE and PE. In the past I have used this resource: starcapital.de, but the updates have been ...
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Tech companies valuation
Usually tech companies/stocks are valued using one of the two methods:
DCF (discounted cash flows) method that is sensitive to interest rates raise (if rates up value down)
EBITDA or revenues ...
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Do stock prices really tend towards a fair valuation?
I recently started working myself into the concepts of valuation. While I find the concept of fair value very interesting and intuitive, I wonder if prices are actually empirically driven by value in ...
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Valuation of the minimum guaranteed return that (some) pension funds provide - how would you do it?
Let's say a pension fund guarantees an annual return of at least 5% to their customers/investors, such that the investors face a payoff like the one of a call option (no downside). For this guarantee ...
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Historical data on valuations for internet companies during dot-com bubble
I am looking for data on historical valuations for internet companies during the years of the dot-com bubble (2000 - 2002). I know that big auditors have or at least have access to such data on ...
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spinoff entity value / adjusted close of a spinoff
When company $A$ spins off company $B$ (i.e. $A = A'+B$), how do we know exactly the adjustment factor of $A'$ and $B$ before trading
Note I am not asking to value the new companies. That's a whole ...
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Complicated DCF valuation [closed]
Recently I tried to do a few valuation models. I searched a lot for information on the topic, but everything I found was pretty similar simplified models.
Please recommend where I can look at more ...
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