Download Absence of Arbitrage Valuation: A Unified Framework for by P. Glabadanidis PDF

By P. Glabadanidis

ISBN-10: 1349476390

ISBN-13: 9781349476398

Absence of Arbitrage Valuation offers a unified asset pricing approach via absence of arbitrage and applies this framework to such disparate fields as mounted source of revenue defense pricing, foreign currency echange spots, and ahead charges.

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Additional resources for Absence of Arbitrage Valuation: A Unified Framework for Pricing Assets and Securities

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Under what conditions would the two valuations be identical? Do these conditions make sense? 1) which we can compare to the market price-to-dividend ratio to determine whether the market currently undervalues or overvalues the equity. 2) which we can similarly compare to the market-based dividend yield. 3) giving us the theoretically implied forward dividend yield which we can compare to the analysts’ expected consensus forward dividend yield to determine whether the equity is mispriced in the market.

One crude albeit effective way to Relative Valuation with Equity and Value Multiples 31 scale PE multiples for expected future growth rate is to divide them by the expected growth rate leading to the PEG ratio: PEG = PE . 9) In practice, expressing g in decimal format leads to very large values. To deal with this issue, analysts express g in percent which leads to lower numerical values. Note that the lower the PEG ratio is the more undervalued a stock is perceived to be which runs the opposite way of the standard multiples.

Therefore, the protective put option strategy will consist of buying one share of stock and one put option on that stock with strike price of $55. The below table depicts the value of the combined position at the maturity of the put option: Value of stock Value of put option Total value Stock Price < $55 Stock Price ≥ $55 Stock price $55− Stock price Stock price 0 $55 Stock price Note that we have effectively managed to remove the downside risk at, potentially, a considerable cost depending on the current value of the put option.

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