The Valuation of M&A Targets by Relative Indifference Pricing

17 Pages Posted: 28 Feb 2014

See all articles by Carolin Mauch

Carolin Mauch

University of Tuebingen - Faculty of Economics and Social Sciences

Stefan Rostek

University of Tuebingen - Faculty of Economics and Business Administration

Date Written: May 10, 2012

Abstract

In this paper, we promote the approach of relative indifference pricing as a conceptual enhancement of real options theory whenever incompleteness comes into play. As until now the discussion of this concept is limited to the field of mathematical finance, our goal is to stimulate its diffusion amongst business researchers. In a simplified example, we derive M&A target prices that differ for the sell and buy side even if both sides are equally risk-averse and share identical information. Moreover, our approach reveals investor's current level of engagement in the very business field to be another key determinant of the price.

Keywords: relative indifference pricing, buy and sell price, real options, incomplete markets

JEL Classification: D81, G13

Suggested Citation

Mauch, Carolin and Rostek, Stefan, The Valuation of M&A Targets by Relative Indifference Pricing (May 10, 2012). Available at SSRN: https://ssrn.com/abstract=2402171 or http://dx.doi.org/10.2139/ssrn.2402171

Carolin Mauch

University of Tuebingen - Faculty of Economics and Social Sciences ( email )

Mohlstrasse 36
Tuebingen, 72074
Germany

Stefan Rostek (Contact Author)

University of Tuebingen - Faculty of Economics and Business Administration ( email )

Mohlstrasse 36
D-72074 Tuebingen, 72074
Germany

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