Valuing Streams of Risky Cashflows With Risk-value Models
28 Pages Posted: 12 Feb 2018
Date Written: February 9, 2018
Abstract
Based on risk-value models, we introduce a multiperiod approach to the valuation of streams of risky cashflows. The valuation is based on the (expected) value of the output’s or input’s magnitude and the risk of the output cashflow, as captured by a risk measure. We derive three formulas for valuing single cashflows and utilize the principles of separate valuation and of cumulating the cashflows to derive a multi-period valuation method. In an axiomatic way, the paper sets out the foundations for a new approach and suggests several directions for its further development.
Keywords: risk-value models, company valuation, project valuation, alternative approach, value-at- risk (VaR)
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