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Valuation of Corporate Debt and Equity in Uncertain Markets

Author

Listed:
  • Frank Ranganai Matenda

    (School of Accounting, Economics and Finance, University of KwaZulu-Natal, Westville Campus, University Road, Westville, Private Bag X54001, 4000, Durban, South Africa,)

  • Justin Chirima

    (Department of Mathematics and Computer Science, Great Zimbabwe University, P. O. Box 1235, Masvingo, Zimbabwe.)

  • Mabutho Sibanda

    (School of Accounting, Economics and Finance, University of KwaZulu-Natal, Westville Campus, University Road, Westville, Private Bag X54001, 4000, Durban, South Africa,)

Abstract

In practice, financial decisions are made in the context of indeterminacy. Randomness, uncertainty, and fuzziness are three basic types of indeterminacy. A multiplicity of differential equations have been designed to depict various processes powered by different kinds of indeterminacy. Among others, these differential equations include uncertain differential equations, stochastic differential equations, and fuzzy differential equations. In this study, we propose that the value of a firm can be described by an uncertain differential equation powered by a geometric canonical Liu process. Uncertain differential equations describe processes driven by uncertainty. Implementing the uncertain Liu option pricing theory, we develop and analyse a framework for valuing debt and equity for a levered firm in uncertain markets. Numerical calculations are demonstrated.

Suggested Citation

  • Frank Ranganai Matenda & Justin Chirima & Mabutho Sibanda, 2023. "Valuation of Corporate Debt and Equity in Uncertain Markets," International Journal of Economics and Financial Issues, International Journal of Economics and Financial Issues, vol. 13(1), pages 7-12, January.
    • Handle: RePEc:eco:journ1:2023-01-2
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    References listed on IDEAS

    as
    1. Wang, Weiwei & Ralescu, Dan A., 2021. "Valuation of lookback option under uncertain volatility model," Chaos, Solitons & Fractals, Elsevier, vol. 153(P1).
    2. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
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    Cited by:

    1. Muhammad Shoaib Khan & Javed Hussain & Tareq Saeed, 2025. "Credit Risk: Structural Models With Risk‐Neutral Approach Under Uncertainty Theory," Journal of Mathematics, John Wiley & Sons, vol. 2025(1).
    2. Xiangfeng Yang & Haoxuan Li, 2025. "Uncertain finance: a systematic review of recent advances," Fuzzy Optimization and Decision Making, Springer, vol. 24(3), pages 531-561, September.

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    More about this item

    Keywords

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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