Practical Sensitivity Analysis

20 Pages Posted: 7 Feb 2006

See all articles by Ignacio Velez-Pareja

Ignacio Velez-Pareja

Grupo Consultor CAV Capital Advisory & Valuation

Date Written: February 3, 2006

Abstract

In this teaching note we show how to use sensitivity analysis to consider uncertainty in the valuation of cash flows. We illustrate in a very simple way the use of the traditional identical percent change in the variables and an approximate approach that considers the probability of occurrence of the changes using the standard deviation as the change instead of the relative change expressed as a percent. Two variables and scenario analysis is shown to illustrate the sensitivity of multiple variables.

Keywords: Uncertainty, sensitivity analysis, probabilistic sensitivity analysis, cash flow valuation.

JEL Classification: G12, G31

Suggested Citation

Velez-Pareja, Ignacio, Practical Sensitivity Analysis (February 3, 2006). Available at SSRN: https://ssrn.com/abstract=881055 or http://dx.doi.org/10.2139/ssrn.881055

Ignacio Velez-Pareja (Contact Author)

Grupo Consultor CAV Capital Advisory & Valuation ( email )

Ave Miramar # 18-93 Apt 6A
Cartagena
Colombia
+573112333074 (Phone)

HOME PAGE: http://cashflow88.com/decisiones/decisiones.html

Register to save articles to
your library

Register

Paper statistics

Downloads
859
Abstract Views
2,980
rank
26,930
PlumX Metrics