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Valuation Under Uncertainty**

Published online by Cambridge University Press:  19 October 2009

Houng-Yhi Chen
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Extract

Broadly speaking there are two models to the problem of asset valuation under uncertainty and aversion to risk. Under one, the certaintyequivalent method, each future return is converted to its certainty equivalent and discounted at the pure rate of interest. Under the other, the risk-adjusted discount rate method, each future return is discounted at an appropriate discount rate. The interrelation and validity of these models of asset valuation have come under discussion in two important works on stock valuation.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 2 , Issue 3 , September 1967 , pp. 313 - 325
Copyright
Copyright © School of Business Administration, University of Washington 1967

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References

1.Bauman, W. Scott, “Estimating the Present Value of Common Stocks by the Variable Rate Method,” Michigan Business Reports No. 42 (Ann Arbor, Michigan: University of Michigan Press), 1963.Google Scholar
2.Clendenin, John C., “Theory and Technique of Growth Stock Valuation,” Occasional Paper No. 1 (Los Angeles: Bureau of Business and Economic Research, UCLA), 1957.Google Scholar
3.Gordon, Myron J., The Investment, Financing and Valuation of the Corporation (Homewood, Ill.: Richard D. Irwin, Inc.), 1962.Google Scholar
4.Gordon, Myron J., “The Savings Investment and Valuation of a Corporation,” Review of Economics and Statistics. February 1962, pp. 37–51.CrossRefGoogle Scholar
5.Robichek, Alexander A. and Myers, Stewart C., Optimal Financing Decisions (Englewood Cliffs, N. J.: Prentice-Hall, Inc.), 1965.Google Scholar
6.Robichek, Alexander A. and Myers, Stewart C., “Conceptual Problems in the Use of Risk-Adjusted Discount Rates,” Journal of Finance, December 1966, pp. 727–730.CrossRefGoogle Scholar