An intrinsic value approach to valuation with forward–backward loops in dividend paying stocks
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An intrinsic value approach to valuation with forward–backward loops in dividend paying stocks. / Nyegaard, Anna Kamille; Ott, Johan Raunkjaer; Steffensen, Mogens.
I: Mathematics, Bind 9, Nr. 13, 1520, 2021.Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › fagfællebedømt
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TY - JOUR
T1 - An intrinsic value approach to valuation with forward–backward loops in dividend paying stocks
AU - Nyegaard, Anna Kamille
AU - Ott, Johan Raunkjaer
AU - Steffensen, Mogens
N1 - Publisher Copyright: © 2021 by the authors. Licensee MDPI, Basel, Switzerland.
PY - 2021
Y1 - 2021
N2 - We formulate a claim valuation problem where the dynamics of the underlying asset process contain the claim value itself. The problem is motivated here by an equity valuation of a firm, with intermediary dividend payments that depend on both the underlying, that is, the assets of the company, and the equity value itself. Since the assets are reduced by the dividend payments, the entanglement of claim, claim value, and underlying is complete and numerically challenging because it forms a forward–backward stochastic system. We propose a numerical approach based on disentanglement of the forward–backward deterministic system for the intrinsic values, a parametric assumption of the claim value in its intrinsic value, and a simulation of the stochastic elements. We illustrate the method in a numerical example where the equity value is approximated efficiently, at least for the relevant ranges of the asset value.
AB - We formulate a claim valuation problem where the dynamics of the underlying asset process contain the claim value itself. The problem is motivated here by an equity valuation of a firm, with intermediary dividend payments that depend on both the underlying, that is, the assets of the company, and the equity value itself. Since the assets are reduced by the dividend payments, the entanglement of claim, claim value, and underlying is complete and numerically challenging because it forms a forward–backward stochastic system. We propose a numerical approach based on disentanglement of the forward–backward deterministic system for the intrinsic values, a parametric assumption of the claim value in its intrinsic value, and a simulation of the stochastic elements. We illustrate the method in a numerical example where the equity value is approximated efficiently, at least for the relevant ranges of the asset value.
KW - Corporate finance
KW - Forward–backward stochastic differential equations
KW - Intrinsic value
KW - With-profit insurance
UR - http://www.scopus.com/inward/record.url?scp=85109386552&partnerID=8YFLogxK
U2 - 10.3390/math9131520
DO - 10.3390/math9131520
M3 - Journal article
AN - SCOPUS:85109386552
VL - 9
JO - Mathematics
JF - Mathematics
SN - 2227-7390
IS - 13
M1 - 1520
ER -
ID: 284413201