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The valuation of a firm advertising optimally

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  • Epstein, D.
  • Mayor, N.
  • Schonbucher, P.
  • Whalley, A. E.
  • Wilmott, P.

Abstract

In this paper we model the value of a firm based on its current earnings and cash balances. The value is modelled on the assumption that earnings follow a mean-reverting process. The effect of advertising on earnings is modelled, and the condition for optimal advertising derived. The value of the firm is derived as the solution to a partial differential equation. The way in which this value depends on the legal structure and banking arrangements of the firm is discussed.
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Suggested Citation

  • Epstein, D. & Mayor, N. & Schonbucher, P. & Whalley, A. E. & Wilmott, P., 1998. "The valuation of a firm advertising optimally," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(2), pages 149-166.
    • Handle: RePEc:eee:quaeco:v:38:y:1998:i:2:p:149-166
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    5. Steven Li, 2002. "A valuation model for firms with stochastic earnings," School of Economics and Finance Discussion Papers and Working Papers Series 122, School of Economics and Finance, Queensland University of Technology.
    6. Marcel Philipp Müller & Sebastian Stöckl & Steffen Zimmermann & Bernd Heinrich, 2016. "Decision Support for IT Investment Projects," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 58(6), pages 381-396, December.
    7. Steven Li, 2003. "A valuation model for firms with stochastic earnings," Applied Mathematical Finance, Taylor & Francis Journals, vol. 10(3), pages 229-243.
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