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Expected Present Value (expected + present_value)
Selected AbstractsThe real exchange rate and real interest differentials: the role of nonlinearitiesINTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 4 2005Nelson C. Mark Abstract Recent empirical work has shown the importance of nonlinear adjustment in the dynamics of real exchange rates and real interest differentials. This work suggests that the tenuous empirical linkage between the real exchange rate and the real interest differential might be strengthened by explicitly accounting for these nonlinearities. We pursue this strategy by pricing the real exchange rate by real interest parity. The resulting first-order stochastic difference equation gives the real exchange rate as the expected present value of future real interest differentials which we compute numerically for three candidate nonlinear processes. Regressions of the log real US dollar prices of the Canadian dollar, deutschemark, yen and pound on the fundamental values implied by these nonlinear models are used to evaluate the linkage. The evidence for linkage is stronger when these present values are computed over shorter horizons than for longer horizons. Copyright © 2005 John Wiley & Sons, Ltd. [source] An Aggregation Theorem for the Valuation of Equity Under Linear Information DynamicsJOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 3-4 2003David Ashton We state an Aggregation Theorem which shows that the recursion value of equity is functionally proportional to its adaptation value. Since the recursion value of equity is equal to its book value plus the expected present value of its abnormal earnings, it follows that the adaptation value of equity can normally be determined by a process of simple quadrature. We demonstrate the application of the Aggregation Theorem using two stochastic processes. The first uses the linear information dynamics of the Ohlson (1995) model. The second uses linear information dynamics based on the Cox, Ingersoll and Ross (1985),square root' process. Both these processes lead to closed form expressions for the adaptation and overall market value of equity. There are, however, many other processes which are compatible with the Aggregation Theorem. These all show that the market value of equity will be a highly convex function of its recursion value. The empirical evidence we report for UK companies largely supports the convexity hypothesis. [source] Social Security Wealth and Retirement Decisions in ItalyLABOUR, Issue 2003Agar Brugiavini Our analysis tries to assess the importance of the financial incentives built into the social security system. The basic idea is very simple: at any given age, and based on the available information, workers compare the expected present value of two alternatives: retiring today or working one more year, and then choose the best one. A key role in this kind of comparisons is played by social security wealth, whose level and changes reflect the expectations about the profile of future earnings and the institutional features of the social security system. The various incentive measures that we consider differ in the precise weight given to the social security wealth that workers accrue as they continue to work. Our model does not provide a structural representation of the retirement process. A worker's decision is modeled here following a ,quasi reduced-form' approach, with the incentive measures entering as predictors of the worker's choice in addition to standard variables. The estimated models are then used to predict retirement probabilities under alternative policies that change social security wealth and derived incentive measures. [source] Pension funding problem with regime-switching geometric Brownian motion assets and liabilitiesAPPLIED STOCHASTIC MODELS IN BUSINESS AND INDUSTRY, Issue 2 2010Ping Chen Abstract This paper extends the pension funding model in (N. Am. Actuarial J. 2003; 7:37,51) to a regime-switching case. The market mode is modeled by a continuous-time stationary Markov chain. The asset value process and liability value process are modeled by Markov-modulated geometric Brownian motions. We consider a pension funding plan in which the asset value is to be within a band that is proportional to the liability value. The pension plan sponsor is asked to provide sufficient funds to guarantee the asset value stays above the lower barrier of the band. The amount by which the asset value exceeds the upper barrier will be paid back to the sponsor. By applying differential equation approach, this paper calculates the expected present value of the payments to be made by the sponsor as well as that of the refunds to the sponsor. In addition, we study the effects of different barriers and regime switching on the results using some numerical examples. The optimal dividend problem is studied in our examples as an application of our theory. Copyright © 2009 John Wiley & Sons, Ltd. [source] | ||||||||||