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Some Potential Means for Venture Valuation

  • Wolfgang Stummer

    (University of Ulm)

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    In some modern venture valuation approaches, option pricing theory plays an important role. The aim of this paper is to present some tools and viewpoints which might be helpful for future investigations along this line. We model the value-dynamics Xt of an imbedded underlying X as a non-lognormally-distributed generalization of the geometric Brownian motion. In detail, Xt is supposed to be a solution of a stochastic differential equation of the form with non-constant volatility function ? (t) and Brownian motion Wt . For this, we discuss a certain decision problem concerning the size of the trend function b . Under some handy-toverify but far-reaching assumptions, we investigate the (average) reduction of decision risk that can be obtained by observing the sample path of X . Furthermore, we also show some connections with the valuation of call options on X .

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    File URL: http://jefsite.org/RePEc/pep/journl/jef-2002-07-3-d-stummer.pdf
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    Article provided by Pepperdine University, Graziadio School of Business and Management in its journal Journal of Entrepreneurial Finance and Business Ventures.

    Volume (Year): 7 (2002)
    Issue (Month): 3 (Fall)
    Pages: 39-52

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    Handle: RePEc:pep:journl:v:7:y:2002:i:3:p:39-52
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    Web page: http://bschool.pepperdine.edu/jef

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    1. R. C. Merton, 1970. "Optimum Consumption and Portfolio Rules in a Continuous-time Model," Working papers 58, Massachusetts Institute of Technology (MIT), Department of Economics.
    2. Robert H. Keeley & Sanjeev Punjabi & Lassaad Turki, 1996. "Valuation of Early-Stage Ventures: Option Valuation Models vs. Traditional Approaches," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 5(2), pages 115-38 , Summer.
    3. Mark Rubinstein, 1976. "The Valuation of Uncertain Income Streams and the Pricing of Options," Bell Journal of Economics, The RAND Corporation, vol. 7(2), pages 407-425, Autumn.
    4. Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September.
    5. Merton, Robert C, 1969. "Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 247-57, August.
    6. 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 637-54, May-June.
    7. Robert C. Merton, 1973. "Theory of Rational Option Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 141-183, Spring.
    8. Bruce Kogut, 1991. "Joint Ventures and the Option to Expand and Acquire," Management Science, INFORMS, vol. 37(1), pages 19-33, January.
    9. Tailan Chi & Donald J McGuire, 1996. "Collaborative Ventures and Value of Learning: Integrating the Transaction Cost and Strategic Option Perspectives on the Choice of Market Entry Modes," Journal of International Business Studies, Palgrave Macmillan, vol. 27(2), pages 285-307, June.
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