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On the use of the terminal-value approach in risk-value models

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  • Gregor Dorfleitner

    (University of Regensburg)

Abstract

We extend risk-value models for valuing streams of risky cash flows by establishing the well-known concept of terminal value in this context. For a constant growth assumption we are able to derive upper and lower bounds for the terminal value in the case of a translation-invariant and in the case of a position-invariant risk measure. For both cases we also obtain an exact formula under a special growth assumption for the future cash flows. Furthermore, we provide results on the applicability of the general findings for the case that the log-return of the risky investment follows a Brownian motion.

Suggested Citation

  • Gregor Dorfleitner, 2022. "On the use of the terminal-value approach in risk-value models," Annals of Operations Research, Springer, vol. 313(2), pages 877-897, June.
    • Handle: RePEc:spr:annopr:v:313:y:2022:i:2:d:10.1007_s10479-020-03644-2
    DOI: 10.1007/s10479-020-03644-2
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    References listed on IDEAS

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