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Questions tagged [valuation]

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

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62 views

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

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", the Carry ...
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1answer
93 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
43 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
64 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
124 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
70 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
55 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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71 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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60 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
57 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
189 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 ...
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1answer
319 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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45 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
355 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
29 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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84 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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64 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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80 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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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 ...
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1answer
131 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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2answers
144 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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1answer
491 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 ...
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1answer
46 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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81 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
184 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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2answers
260 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 ...
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1answer
2k 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
238 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 ...
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1answer
1k 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. ...
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1answer
211 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 ...
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3answers
145 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
1k 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 ...
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1answer
547 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 ...
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185 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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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 ...
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3k 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
123 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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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. ...
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1answer
67 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 ...
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1answer
317 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 \...
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1answer
2k 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
422 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 ...
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1answer
70 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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289 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 ...
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1answer
171 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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22 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 ...
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1answer
39 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 ...
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1answer
1k 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 ...
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1answer
225 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) ...
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1answer
480 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 "...