A valuation model for firms with stochastic earnings
AbstractIn this paper, a model is set up for valuing a firm with stochastic earnings. It is assumed that the earnings of the considered firm follow a time-varying mean reverting stochastic process. It is shown that the value of the firm satisfies a boundary value problem of a second-order partial differential equation, which can be solved numerically. Special cases are discussed. Analytic solution is found for one special case. Moreover it is shown that the analytic solution is consistent with a previous result obtained by other researchers.
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Bibliographic InfoPaper provided by School of Economics and Finance, Queensland University of Technology in its series School of Economics and Finance Discussion Papers and Working Papers Series with number 122.
Date of creation: 20 Nov 2002
Date of revision:
stochastic earnings; firm valuation; debt valuation;
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