The Valuation of M&A Targets by Relative Indifference Pricing
17 Pages Posted: 28 Feb 2014
Date Written: May 10, 2012
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: Suggested Citation