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Non-arbitrage valuation of equities

Sebastian Rey

International Journal of Financial Markets and Derivatives, 2015, vol. 4, issue 3/4, 231-245

Abstract: This paper develops a framework for the valuation of equities under non-arbitrage conditions. The original contribution is that, in contrast with the traditional models (equilibrium models), the presented approach is derived using non-arbitrage arguments, commonly used for derivatives pricing. The method consists in analysing the non-arbitrage value of the equity of a company, that is assumed to be the sum of the non-arbitrage value of dividends, individually considered as (path-dependent European type) financial derivatives. A relevant characteristic of the presented approach is that the setting of subjective assumptions would be significantly reduced.

Keywords: equities valuation; non-arbitrage pricing; market price of risk; path-dependent derivatives; financial derivatives. (search for similar items in EconPapers)
Date: 2015
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Handle: RePEc:ids:ijfmkd:v:4:y:2015:i:3/4:p:231-245