Non-arbitrage valuation of equities
by Sebastián A. Rey
International Journal of Financial Markets and Derivatives (IJFMD), Vol. 4, No. 3/4, 2015

Abstract: This paper develops a framework for the valuation of equities under non-arbitrage conditions. The original contribution is that, in contrast with the traditional models (equilibrium models), the presented approach is derived using non-arbitrage arguments, commonly used for derivatives pricing. The method consists in analysing the non-arbitrage value of the equity of a company, that is assumed to be the sum of the non-arbitrage value of dividends, individually considered as (path-dependent European type) financial derivatives. A relevant characteristic of the presented approach is that the setting of subjective assumptions would be significantly reduced.

Online publication date: Wed, 09-Dec-2015

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