DCF and Risk-Neutral Valuation : A comparison

Davide Terrani

ISBN 10: 3639318994 / ISBN 13: 9783639318999

Published by VDM Verlag Dr. Müller, 2011

About this Item

nach der Bestellung gedruckt Neuware - Printed after ordering - The book illustrates an alternative corporate valuation method to the well known DCF. The limitations and drawbacks of the discounting model and especially of the CAPM question its validity for such an important practice for management as corporate valuation. Being based on the option pricing theory and on the concepts of replication and no arbitrage, risk-neutral valuation uses a completely different approach to account for the risk of a cash flow. In fact, the model applies risk-neutral probabilities to adjust the risky future cash flows of the firm to certainty equivalence. The available literature is reviewed and the two valuation approaches are tested by estimating the value for a sample of five companies and comparing the results to the market capitalisation. By analysing the companies ABB, Bâloise, Novartis, UBS and Valora, the empirical test covers different sectors, sizes and degrees of financial stability.

Seller Inventory # 9783639318999

Bibliographic Details

• Title: DCF and Risk-Neutral Valuation : A comparison
• Publisher: VDM Verlag Dr. Müller
• Publication Date: 2011
• Language: English
• ISBN 10: 3639318994
• ISBN 13: 9783639318999
• Binding: Taschenbuch
• Condition: Neu
• Dimensions: 220W x 150H x 9D millimeters 220 millimeters width by 150 millimeters height by 9 millimeters depth
• Weight: 219 grams

About this title

Synopsis

The book illustrates an alternative corporate valuation method to the well known DCF. The limitations and drawbacks of the discounting model and especially of the CAPM question its validity for such an important practice for management as corporate valuation. Being based on the option pricing theory and on the concepts of replication and no arbitrage, risk-neutral valuation uses a completely different approach to account for the risk of a cash flow. In fact, the model applies risk-neutral probabilities to adjust the risky future cash flows of the firm to certainty equivalence. The available literature is reviewed and the two valuation approaches are tested by estimating the value for a sample of five companies and comparing the results to the market capitalisation. By analysing the companies ABB, Bâloise, Novartis, UBS and Valora, the empirical test covers different sectors, sizes and degrees of financial stability.

About the Author

Davide Terrani: Master in Accounting & Finance and International Management at the University of St. Gallen, Switzerland.