discount factor
TRANSCRIPT
Patent valuation - Income-based method
1 This method is based on the principle that the value of an asset is intrinsic to the
expected income flows it generates. After the income is estimated, the result is
discounted by an appropriate discount factor with the objective to adjust it to the
present circumstances and therefore to determine the net present value of the intellectual property. There are different methods of calculation of the future cash
flows, such as: https://store.theartofservice.com/the-discount-factor-toolkit.html
Patent valuation - Income-based method
1 # Discounted cash flow method: This method aims to estimate future cash flows, which are projected and after
discounted by applying an appropriate discount factor. The main source of information to estimate the cash flows is generally the business plan of the company that exploits or
intends to exploit the asset.
https://store.theartofservice.com/the-discount-factor-toolkit.html
Patent valuation - Toolip Valuation
1 It also manages information about legal data (patent validity, extension
countries, remaining term) and financial data (annual turnover,
expected growth in the company or market, discount factors), and also covering technological, strategic or marketing aspects of the patented
technology
https://store.theartofservice.com/the-discount-factor-toolkit.html
Stern Review on the Economics of Climate Change - Inherent discounting
1 He supports the discount factors used in the Stern analysis,
particularly the view that discounting should reflect only the probability that the world will end at a given
future date, and not the impatience of an infinitely lived representative
consumer.)
https://store.theartofservice.com/the-discount-factor-toolkit.html
Hyperbolic discounting - Formal model
1 where f(D) is the discount factor that multiplies the value of the reward, D is the delay in the reward, and k is a parameter governing the degree of discounting. This is compared with
the formula for exponential discounting:
https://store.theartofservice.com/the-discount-factor-toolkit.html
Hyperbolic discounting - Quasi-hyperbolic approximation
1 where β and δ are constants between 0 and 1; and again D is the delay in the reward, and f(D) is the discount
factor. The condition f(0) = 1 is stating that rewards taken at the present time are not discounted.
https://store.theartofservice.com/the-discount-factor-toolkit.html
Stock valuation - Limited high-growth period approximation
1 and hence are extremely sensitive to the difference of dividend growth to
discount factor. One might argue that an analyst can justify any value (and
that
https://store.theartofservice.com/the-discount-factor-toolkit.html
Model (economics) - Omitted details
1 * In turn, environmental economics has been accused of omitting key financial considerations from its
models. For example the returns to solar power investments are
sometimes modelled without a discount factor, so that the present utility of solar energy delivered in a century's time is precisely equal to
gas-power station energy today.https://store.theartofservice.com/the-discount-factor-toolkit.html
At the money - Simple examples
1 Note that once logs are taken, moneyness in terms of forward or
spot differ by an additive factor (log of discount factor), as \ln\left(F/K\
right) = \ln(S/K)+rT.
https://store.theartofservice.com/the-discount-factor-toolkit.html
Discounting - Discount factor
1 The 'discount factor', DF(T), is the factor by which a future cash flow
must be multiplied in order to obtain the present value. For a zero-rate
(also called spot rate) r, taken from a yield curve, and a time to cashflow T
(in years), the discount factor is:
https://store.theartofservice.com/the-discount-factor-toolkit.html
Discounting - Discount factor
1 In the case where the only discount rate you have is not a zero-rate (neither taken from a zero-coupon bond nor converted from a swap rate to a zero-rate through
Bootstrapping (finance)|bootstrapping) but an annually-compounded rate (for example
if your benchmark is a US Treasury bond with annual coupons and you only have its
yield to maturity, you would use an annually-compounded discount factor:
https://store.theartofservice.com/the-discount-factor-toolkit.html
Discounting - Discount factor
1 In that case, the discount factor is then (if the usual money market day count convention for the currency is ACT/360, in case of currencies such as USD, EUR, JPY), with r the zero-rate and T the time to cashflow in
years:
https://store.theartofservice.com/the-discount-factor-toolkit.html
Welfare cost of business cycles - Mathematical representation and formula
1 Lucas sets up an infinitely lived representative agent model where
total lifetime utility(U is given by the present discounted value (with \beta
representing the Discount factor#Discount factor|discount
factor) of per period utilities (u(.)) which in turn depend on
consumption in each period (c_t)
https://store.theartofservice.com/the-discount-factor-toolkit.html
Valuation using multiples - Determining discount rate / factor
1 VirusControl has chosen their discount rate very high as their
company is potentially very profitable but also very risky. They
calculate their discount factor based on five years.
https://store.theartofservice.com/the-discount-factor-toolkit.html
Valuation using multiples - Determining current company value
1 Calculate the current value of the future company value by multiplying
the future business value with the discount factor. This is known as the
time value of money.
https://store.theartofservice.com/the-discount-factor-toolkit.html
Valuation using multiples - Determining current company value
1 VirusControl multiplies their future company value with the
discount factor:https://store.theartofservice.com/the-discount-factor-toolkit.html
Impulsive behaviour - Intertemporal choice
1 Many studies suggest that humans and animals discount future values
according to a hyperbolic discounting curve where the discount factor decreases with the length of the delay (for example, waiting from
today to tomorrow involves more loss of value than waiting from twenty
days to twenty-one days)
https://store.theartofservice.com/the-discount-factor-toolkit.html
Price leadership - Duopoly example
1 To be more precise, suppose that firms have a Discounting#Discount factor|discount factor \delta. The discounted value of the cost to cheating and being punished
indefinitely are
https://store.theartofservice.com/the-discount-factor-toolkit.html
Inverted yield curve - Market expectations (pure expectations) hypothesis
1 The significant difficulty in defining a yield curve therefore is to determine
the function P(t). P is called the discount factor function.
https://store.theartofservice.com/the-discount-factor-toolkit.html
Inverted yield curve - Market expectations (pure expectations) hypothesis
1 Let the vector F represent today's prices of the instrument (so that the i-th instrument has value F(i)), then by definition of our discount factor function P we should have that F = AP (this is a matrix multiplication)
https://store.theartofservice.com/the-discount-factor-toolkit.html
Impulsivity - Intertemporal choice
1 Many studies suggest that humans and animals discount future values
according to a hyperbolic discounting curve where the discount factor decreases with the length of the delay (for example, waiting from
today to tomorrow involves more loss of value than waiting from twenty
days to twenty-one days)
https://store.theartofservice.com/the-discount-factor-toolkit.html
Risk-neutral measure - Usage
1 Risk-neutral measures make it easy to express the value of a derivative in a formula. Suppose at a future time T a
derivative (e.g., a call option on a stock) pays H_T units, where H_T is a random
variable on the probability space describing the market. Further suppose that the discount factor from now (time zero) until time T is P(0, T). Then today's
fair value of the derivative is
https://store.theartofservice.com/the-discount-factor-toolkit.html
Folk theorem (game theory)
1 The folk theorem states that any feasible payoff profile that strictly
dominates the minmax profile can be realized as a Nash equilibrium payoff
profile, with sufficiently large discount factor.
https://store.theartofservice.com/the-discount-factor-toolkit.html
Folk theorem (game theory) - Sketch of proof
1 In more detail, assume that the payoff of a player in an infinitely repeated game is given by the
average discounted criterion with discount factor 0 δtt \geq 011-\
delta \epsilon.
https://store.theartofservice.com/the-discount-factor-toolkit.html
Stochastic discount factor
1 A 'Stochastic discount factor (SDF)' is a concept in financial economics and
mathematical finance.
https://store.theartofservice.com/the-discount-factor-toolkit.html
Stochastic discount factor
1 This definition is of fundamental importance in Valuation (finance)|asset pricing. The name stochastic
discount factor reflects the fact that the price of an asset can be
computed by discounting the future cash flow \tilde_i by the stochastic factor \tilde and then taking the
expectation.
https://store.theartofservice.com/the-discount-factor-toolkit.html
Stochastic discount factor - Other names
1 The stochastic discount factor is sometimes referred to as the 'pricing kernel'. This name comes from the
fact that if the expectation
https://store.theartofservice.com/the-discount-factor-toolkit.html
Integral kernel - Motivation
1 Also there are many applications of probability that rely on integral
transforms, such as pricing kernel or stochastic discount factor, or the smoothing of data recovered from
robust statistics, see kernel (statistics).
https://store.theartofservice.com/the-discount-factor-toolkit.html
Kernel - Finance
1 * Pricing kernel, another name for the stochastic discount factor used in asset
pricing
https://store.theartofservice.com/the-discount-factor-toolkit.html
Greeks (finance) - Practical use
1 By put–call parity, long a call and short a put equals a forward F, which is linear in the spot S, with factor the inverse of the discount factor, so the
derivative dF/dS is this factor.
https://store.theartofservice.com/the-discount-factor-toolkit.html
Greeks (finance) - Practical use
1 50 Delta put and 50 Delta call are not quite identical, due to spot and forward differing by the discount
factor, but they are often conflated.
https://store.theartofservice.com/the-discount-factor-toolkit.html
Monte Carlo methods in finance - Mathematically
1 where _T is the discount factor corresponding to the risk-free rate to the final maturity date T years into
the future.
https://store.theartofservice.com/the-discount-factor-toolkit.html
Put-call parity - Statement
1 The assets C and P on the left side are given in current values, while the
assets F and K are given in future values (forward price of asset, and
strike price paid at expiry), which the discount factor D converts to present
values.
https://store.theartofservice.com/the-discount-factor-toolkit.html
Bond convexity - How bond duration changes with a changing interest rate
1 As the interest rate increases, the present value of longer-dated
payments declines in relation to earlier coupons (by the discount factor between the early and late
payments)
https://store.theartofservice.com/the-discount-factor-toolkit.html
Annual effective discount rate
1 It is the annual discount factor to be applied to the future cash flow, to
find the discount, subtracted from a future value to find the value one
year earlier.
https://store.theartofservice.com/the-discount-factor-toolkit.html
Discounted - Discount factor
1 In that case, the discount factor is then (if the usual money market day count convention for the currency is ACT/360, in case of currencies such
as United States dollar, euro, Japanese yen), with r the zero-rate
and T the time to cash flow in years:
https://store.theartofservice.com/the-discount-factor-toolkit.html
Best places in the US to retire
1 Ranking methodologies have a mixture of Subjectivity|subjective
and statistical elements, and some surveys discount factors such as
Climate, while others emphasize it
https://store.theartofservice.com/the-discount-factor-toolkit.html
Bootstrapping (finance)
1 #Derive discount factors for all terms, these are the internal rates of return of the bonds
https://store.theartofservice.com/the-discount-factor-toolkit.html
Bellman equation - A dynamic decision problem
1 Finally, we assume impatience, represented by a discount factor 0 \
betaPrinciple of Optimality: An optimal policy has the property that whatever the initial state and initial
decision are, the remaining decisions must constitute an optimal policy with regard to the state resulting
from the first decision
https://store.theartofservice.com/the-discount-factor-toolkit.html
Gretna, Dumfries and Galloway - Present day
1 Much of the local economy is driven by the Marriage in Scotland|marriage industry,
where by some accounts, as many as one of every six Scottish weddings takes place in
Gretna / Gretna Green. Most marriages take place in Gretna itself, at the Register office, the Anvil Hall, or in the numerous Hotels in
the centre of the township. Gretna is also the location of the Gretna Gateway Outlet
Village, a development of discount factory shops.
https://store.theartofservice.com/the-discount-factor-toolkit.html
For More Information, Visit:
• https://store.theartofservice.com/the-discount-factor-toolkit.html
The Art of Servicehttps://store.theartofservice.com