No issue has been the subject of greater debate among both practicing and academic accountants than asset valuation (and hence income measurement). The debate on this issue has been going on for over 50 years (e.g., Paton [1922] and Canning [1929]) and, at times, at a high level of intensity. The primary issue is whether historical cost of assets should be adjusted for price changes and, if so,...

We propose a new definition for tameness within the model of security prices as Itô processes that is risk-aware. We give a new definition for arbitrage and characterize it. We then prove a theorem that can be seen as an extension of the second fundamental theorem of asset pricing, and a theorem for valuation of contingent claims of the American type. The valuation of European contingent claims...

In this paper we present an approach to market based valuation of life insurance policies, in the spirit of the NUMAT proposed by Hans Bühlmann (2002) in an editorial in the ASTIN Bulletin. We have experienced the valuation method for more than one decade, both as a pricing procedure applied to policy portfolios of leading insurance companies, and by including the valuation principles into seve...

There has been criticism within the real estate professions that the lack of availability of good quality data has led actuarial professionals and academics to ignore real estate for modelling purposes. It has sometimes been asserted that this is one of the reasons for the decline in institutional investment in real estate, as asset allocation experts have ignored the asset class because of the...

In this paper we discuss the development of a valuation system of asset-liability management of portfolios of life insurance policies on advanced architectures. According to the new rules of the Solvency II project, numerical simulations must provide reliable estimates of the relevant quantities involved in the contracts; therefore, valuation processes have to rely on accurate algorithms able t...

This paper focuses on inconsistencies arising from the use of NPV and CAPM for capital budgeting. It shows that (i) CAPM capital budgeting decision-making based on disequilibrium NPV is deductively inferred by the Capital Asset Pricing Model, (ii) the use of the disequilibrium NPV is widespread in finance both as a decision rule and as a valuation tool, (iii) the disequilibrium NPV does not gua...

This paper is a contribution to the valuation of derivative securities in a stochastic volatility framework, which is a central problem in financial mathematics. The derivatives to be priced are of European type with the payoff depending on both the stock and the volatility. The valuation approach uses utility-based criteria under the assumption of exponential risk preferences. This methodology...

This paper is a contribution to the valuation of derivative securities in a stochastic volatility framework, which is a central problem in financial mathematics. The derivatives to be priced are of European type with the payoff depending on both the stock and the volatility. The valuation approach uses utility-based criteria under the assumption of exponential risk preferences. This methodology...

We show that the dispersion of private valuation reduces market liquidity and allocative e ciency of a dynamic OTC market. In this decentralized market, traders have time varying and heterogeneous private value over the asset and dealers act as competing mechanism designers. We characterize the optimal liquidity provision with endogenous valuation, outside options and type distributions. Depend...

A fast and accurate method for pricing early exercise options in computational finance is presented in this paper. The main idea is to reformulate the well-known risk-neutral valuation formula by recognizing that it is a convolution. This novel pricing method, which we name the ‘CONV’ method for short, is applicable to a wide variety of payoffs and only requires the knowledge of the characteris...