This sometimes leads to confusion.
Industry averages Estimating Riskfree Rates The riskfree rate is a fundamental input to most risk and return models. In practice, estimating riskfree rates becomes difficult when there are no default-free securities.
In addition, the question of what riskfree rate to use short term or long term, dollar or foreign currency is a critical one. This paper examines these issues. Download pdf file The Equity Risk Premium Edition The equity risk premium ERP is a central input into discounted cash flow models, and more than any other number, it captures what investors think about stock prices in the aggregate.
In this paper, we examiine the determinants of equity risk premiums and the three basic approaches used to estimate the number - surveys, historical returns and implied values.
We look at why the approaches give you different answers and how to pick the right number to use in analysis. Determinants, Estimation and Implications Valuing Multiple Claims on Equity Equity claims can vary on a number of different dimensions - voting rights controlliquidity and cash flows.
We examine how to allocate the value of equity across multiple claims on equity in this paper. In the process, we examine the premium that should be paid for voting shares, the discount to be applied to illiqudid shares and the effect of contingent claims.
Valuing Equity Claims The Origins of Growth One of the most difficult challenges in valuing a business is estimating the expected growth rate in future years. In this chapters, we look at the three ways in which this growth rate can be estimated - from history, from analyst or management estimates and from fundamentals.
We look at the pluses and minuses of each approach and why they may generate different estimates. Download paper as pdf file Measuring Returns: Accounting measures of returns, primarily return on equity and capital, are significnant determinants of value.
In this paper, we examine the motivation behind the focus on returns and how best to clean up accounting numbers to estimate and forecasts returns. Measuring Returns A Survey Paper on Valuation People have been valuing businesses for as long as businesses have been around.
We examine how valuation techniques have evolved over time and the common foundatation that different approaches share. Probabilistic Approaches to Risk With the advent of simulation software like Crystal Ball and Riska full-fledged simulation or scenrio analysis is well within the grasp of any analyst valuing a company or analyzing a project.
However, what rold should simulations and scenario analysis play in valuation? And what is the relationship between these analysis and traditional expected value calculations where we adjust for risk in the discount rate? Probabilistic Approaches to Risk Download paper Value at Risk VaR Value at Risk has acquired a cache, especially among financial service firms, as a new and sophisticated way of analyzing risk.
We look at the basis for VaR, its pluses and minuses.
That is the question. Investors and businesses have more options and opportunities than ever before to hedge risk. But should firms hedge risk? What is the payoff to doing so? If a business or investor chooses to hedge risk, what is the best way to hedge risk derivatives or insurance, for instance?risk measurement technique to control market eventualities, its uses (VaR) Value at Risk and Pv01 (Present value at one).
Management applies these methodologies to its trading and non trading. Risk management and performance analysis white papers and risk management glossary. Keywords: Value at Risk, Systemic Risk, Risk Spillovers, Financial Architecture JEL classi–cation: G01, G10, G18, G20, G28, G32, G38 Special thanks go to Daniel Green and Hoai-Luu Nguyen for outstanding research assistance.
Working Papers. Learning from History: Volatility and Financial Crises Endogenous extreme events and the dual role of prices Procyclical leverage and endogenous risk Exchange rate determination and inter-market order flow effects Regime switches in the volatility and Value-at-Risk, and the Basle 'multiplication factor' All rights.
Oct 22, · Estimation risk for value-at-risk and expected shortfall This paper provides a detailed analysis of the relationship between approximate VaR (ES) and exact VaR (ES) by finding a linear regression model in which the response variable is the approximate VaR (ES) and the explanatory variable is the exact VaR (ES).
these three very interesting and constructive papers dealing with value-at-risk modeling issues. In my view, each paper is an excellent example of what academic research has to tell practitioners and supervisors about the practical prob-lems of constructing value-at-risk models.