Complete discounted cash flow valuation

Lesław Gajek and Łukasz Kuciński

Insurance: Mathematics and Economics, 2017, vol. 73, issue C, 1-19

Abstract: This paper concerns discounted cash flow valuation of a company. When the company is in trouble, the owners have an option to provide it with a new capital; otherwise it is liquidated. In the absence of capital outflows and inflows, the company’s own funds are modelled by a spectrally negative Lévy process. Within this framework, we look for a strategy of dividend payments and capital injections which maximizes the firm’s value. We provide an optimal strategy as well as the corresponding valuation formula. Illustrative examples are given.

Keywords: DCF valuation; Dividend problem; Ruin theory; Real options; Mixed stochastic control; Spectrally negative Lévy process; Solvency II (search for similar items in EconPapers)
JEL-codes: C61 D46 G22 G32 G33 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:73:y:2017:i:c:p:1-19

DOI: 10.1016/j.insmatheco.2016.12.004

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