Money-metric valuation of assets

Sudhir A. Shah
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Sudhir A. Shah: Department of Economics, Delhi School of Economics

No 347, Working papers from Centre for Development Economics, Delhi School of Economics

Abstract: We propose an asset’s money-metric value as the appropriate representation of its subjective value to an investor. This value is expressed in monetary terms and is invariant across equivalent utility representations of the investor’s preference. The ordering of money-metric values across assets matches the investor’s preference ordering over the assets.The money-metric value of a risky asset is inversely related to the investor’s risk aversion, while the money-metric value of a risk-free asset is uniform across preferences with comparable risk-aversion. Finally, an asset’s arbitrage-free market price is the sum of its money-metric value and the investor’s willingness-to-pay for fully de-risking the asset. JEL Code: G11, G12

Keywords: money-metric asset valuation; arbitrage-free prices; risk aversion (search for similar items in EconPapers)
Pages: 14 pages
Date: 2024-04
New Economics Papers: this item is included in nep-dcm and nep-upt
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