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Augmented Dynamic Gordon Growth Model

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  • Battulga Gankhuu

Abstract

In this paper, we introduce a dynamic Gordon growth model, which is augmented by a time-varying spot interest rate and the Gordon growth model for dividends. Using the risk-neutral valuation method and locally risk-minimizing strategy, we obtain pricing and hedging formulas for the dividend--paying European call and put options, Margrabe exchange options, and equity--linked life insurance products. Also, we provide ML estimator of the model.

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  • Battulga Gankhuu, 2022. "Augmented Dynamic Gordon Growth Model," Papers 2201.06012, arXiv.org, revised Aug 2023.
    • Handle: RePEc:arx:papers:2201.06012
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