Share Valuation under Geometric Brownian Motion with a Poisson Imputation Tax Change

John Pointon

Journal of Business Finance & Accounting, 1998, vol. 25, issue 1‐2, 103-113

Abstract: A share valuation model is developed on the basis of dividends following a geometric Brownian motion. An imputation tax system is chosen, although this can be collapsed into a classical system. The possibility of changes in tax rates and shareholder tax credits is introduced by means of a Poisson jump. Capital gains are assumed to be tax‐free through either annual or other exemptions. Using Itô’s Lemma, a new share valuation formula is derived. This is recast in terms of the cost of capital and the mean time to the fiscal shock.

Date: 1998
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