摘要
The authors employ the recent stochastic-control-based approach to financial mathematicsto solve a problem of determination of the risk premium for a stochastic interest rate model,andthe corresponding problem of equity valuation.The risk premium is determined explicitly,by meansof solving a corresponding partial differential equation (PDE),in two forms:one,time-dependent,corresponding to a finite time contract expiration,and the simpler version corresponding to perpetualcontracts.As stocks are perpetual contracts,when solving the problem of equity valuation,the latterform of the risk premium is used.By means of solving the general pricing PDE,an efficient equityvaluation method was developed that is a combination of some sophisticated explicit formulas,and anumerical procedure.
The authors employ the recent stochastic-control-based approach to financial mathematics to solve a problem of determination of the risk premium for a stochastic interest rate model, and the corresponding problem of equity valuation. The risk premium is determined explicitly, by means of solving a corresponding partial differential equation （PDE）, in two forms： one, time-dependent, corresponding to a finite time contract expiration, and the simpler version corresponding to perpetual contracts. As stocks are perpetual contracts, when solving the problem of equity valuation, the latter form of the risk premium is used. By means of solving the general pricing PDE, an efficient equity valuation method was developed that is a combination of some sophisticated explicit formulas, and a numerical procedure.
基金
supported in part by the Center for Financial Engineering at the Suzhou University, China
the Taft Research Center at the University of Cincinnati, USA
