The Equilibrium Valuation of Risky Discrete Cash Flows in Continuous Time
AbstractThis paper values a contingent claim to discrete stochastic cash flows generated by a Poisson arrival process with a randomly varying intensity parameter. In the most general case, both the size and the arrival intensity of cash flows may correlate with state variables in a continuous time economy. Assuming the conditions of an intertemporal capital asset pricing model, solutions for the value of the contingent claim can be found using various techniques. The paper suggests immediate applications to the valuation of insurance contracts, the decision to build a firm with unknown future investment opportunities, and the pricing of mortgaged-backed securities. Copyright 1989 by American Finance Association.
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Bibliographic InfoArticle provided by American Finance Association in its journal Journal of Finance.
Volume (Year): 44 (1989)
Issue (Month): 5 (December)
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- Lin, Chung-Gee & Yang, Wei-Ning & Chen, Shu-Chuan, 2014. "Analyses of retirement benefits with options," Economic Modelling, Elsevier, vol. 36(C), pages 130-135.
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