Cash Stream Valuation In the Face of Transaction Costs and Taxes
AbstractThe usual notion of every future cash stream having a net present value determined from a single term structure breaks down when transaction costs are taken into account, especially the sizable costs associated with short-borrowing. the difficulties are compounded by taxes, which can lead to paradoxes of disequilibrium if elementary NPV is assumed to be a rational basis for decision making. This paper systematically develops a theory of valuation which overcomes these shortcomings by accepting the multiplicity of no-arbitrage term structures that may be present for each tax class of investors, and uses the entire set of them to impute both a "long price" and a "short price" for every cash stream, regardless of the sign of the future payments. the valuation operators giving these prices are nonlinear but readily calculated from linear programming formulas. Copyright 1991 Blackwell Publishers.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Wiley Blackwell in its journal Mathematical Finance.
Volume (Year): 1 (1991)
Issue (Month): 1 ()
Contact details of provider:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0960-1627
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Teemu Pennanen, 2011. "Arbitrage and deflators in illiquid markets," Finance and Stochastics, Springer, vol. 15(1), pages 57-83, January.
- Alet Roux & Tomasz Zastawniak, 2006. "A counter-example to an option pricing formula under transaction costs," Finance and Stochastics, Springer, vol. 10(4), pages 575-578, December.
- Birge, John R. & Yang, Song, 2007. "A model for tax advantages of portfolios with many assets," Journal of Banking & Finance, Elsevier, vol. 31(11), pages 3269-3290, November.
- Bjarne Jensen, 2009. "Valuation before and after tax in the discrete time, finite state no arbitrage model," Annals of Finance, Springer, vol. 5(1), pages 91-123, January.
- Baccara, Mariagiovanna & Battauz, Anna & Ortu, Fulvio, 2006. "Effective securities in arbitrage-free markets with bid-ask spreads at liquidation: a linear programming characterization," Journal of Economic Dynamics and Control, Elsevier, vol. 30(1), pages 55-79, January.
- Frank Milne & Edwin Neave, 2003. "A General Equilibrium Financial Asset Economy with Transaction Costs and Trading Constraints," Working Papers 1082, Queen's University, Department of Economics.
- Elyès Jouini, 2003.
"Market imperfections, equilibrium and arbitrage,"
- Ioannides, Michalis, 2003. "A comparison of yield curve estimation techniques using UK data," Journal of Banking & Finance, Elsevier, vol. 27(1), pages 1-26, January.
- Tokarz, Krzysztof & Zastawniak, Tomasz, 2006. "American contingent claims under small proportional transaction costs," Journal of Mathematical Economics, Elsevier, vol. 43(1), pages 65-85, December.
- Napp, Clotilde, 2001. "Pricing issues with investment flows Applications to market models with frictions," Journal of Mathematical Economics, Elsevier, vol. 35(3), pages 383-408, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.