In this paper a Bayesian approach is utilized to analyze the role of the underlying asset and interest rate model in the market consistent valuation of life insurance policies. The focus is on a novel application of advanced theoretical and computational methods. A guaranteed participating contract embedding an American-style option is considered. This option is valued using the regression meth...

As intellectual property (IP) has become an integral part of business strategy, the valuation of these assets has become more and more critical. Consequently, the strategic decisions of Indian SMEs also increasingly depend on understanding the economics affecting the value of these assets and most crucially appraising the approximate value of their IP. In this light, the paper reviews the princ...

The valuation process that economic agents undergo for investments with uncertain payoff typically depends on their statistical views on possible future outcomes, their attitudes toward risk, and, of course, the payoff structure itself. Yields vary across different investment opportunities and their interrelations are difficult to explain. For the same agent, a different discounting factor has ...

This paper studies the relationship between the systematic risk of financial instruments and the volatility of their equilibrium prices in a two-period stochastic asset valuation model. Whereas there is no link between the relative risk of assets and their price volatility in standard representative-agent models with additively-separable preferences, in this model with nonseparable preferences ...

return and volatility spillovers are important for portfolio selection, asset valuation and market efficiency investigation. using a var-bekk framework model, this paper investigates return and volatility spillover effects between three size-sorted equity indices in tehran stock exchange (tse). although daily return of large stocks leads small stocks (lead-lag effect), there wasn’t any spillove...

This paper presents and applies a methodology for valuing electricity derivatives by constructing replicating portfolios from electricity futures and the risk free asset. Futures based replication is argued to be made necessary by the non-storable nature of electricity, which rules out the traditional spot market, storage-based method of valuing commodity derivatives. Using the futures based ap...

A main issue in valuation modeling is the correct choice of the stochastic process that better describes the asset price performance. Particularly, in investment projects that show a high level of managerial flexibility in conditions of uncertainty – for which it would be proposed the real option valuation models – the assumption of a specific process can have an impact not only on the project ...

We introduce the concept of a rational valuation system which encompasses both the Net Present Value (NPV) methodology and martingale based methods used in connection with discrete time Real Options Analysis (ROA). This way we show that the valuation process can be looked at in separation from a specific valuation technique. We also show that flexibility and adaptability — usually presented as ...

The relationship between IT and value is complex and often disputed. Researchers and practitioners have created numerous models and valuation methods to capture this value. Although payoffs from IT investment are a function of strategic alignment, most of these models do not address the alignment of business and IT as a factor that influences or creates value. This paper explores the role of bu...

In this paper we examine the structure of American option valuation problems and derive the analytic valuation formulas under general underlying security price processes by an alternative but intuitive method. For alternative diffusion processes, we derive closed-form analytic valuation formulas and analyze the implications of asset price dynamics on the early exercise premiums of American opti...