Valuing Streams of Risky Cash Flows with Risk-Value Models
Journal of Risk, Forthcoming
38 Pages Posted: 16 May 2017
Date Written: May 11, 2016
Based on risk-value models we introduce a multi-period approach to the valuation of streams of risky cash flows. The valuation is based on the (expected) value of the output’s or input’s magnitude and the risk of the output cash flow, as captured by a risk measure. We derive three formulae for valuing single cash flows and utilize the principles of separate valuation and of cumulating the cash flows to derive a multi-period valuation method. In an axiomatic way, the article sets the foundations for a new approach and suggests several directions for its further development.
Keywords: Risk-Value Models, Company Valuation, Project Valuation, Alternative Approach
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