Shadow costs of incomplete information and short sales in the valuation of the firm and its assets |
| |
| Institution: | 1. UCP Cergy, France;2. ISC Paris, France;1. Assistant Professor Department of Computer Science and Engineering Anna University Regional Office, Madurai, Tamilnadu, India;2. Professor Department of Information Technology K.L.N.College of Engineering, Pottapalayam, Sivaganga, Tamil Nadu, India;1. King''s College, University of Western Ontario, Canada;2. Robert Day School of Economics and Finance, Claremont McKenna College, United States;3. A Gary Anderson Graduate School of Management, University of California, Riverside, United States;1. Highest School of Management, University of Tunis, Tunisia;2. King Abdulaziz University, Saudi Arabia;3. ECSTRA, IHEC, University of Carthage, Tunisia;4. College of Business Administration, King Saud University, Saudi Arabia;1. Institute of Financial Analysis, University of Neuchâtel, Rue A.-L. Breguet 2, Neuchâtel, Switzerland;2. Département de finance, assurance et immobilier, Université Laval, Québec, Canada;3. Solvay Business School, Vrije Universiteit Brussel, Pleinlaan 2, 1050 Brussel, Belgium;4. Faculty of Economics and Business, VU University Amsterdam, The Netherlands;5. KU Leuven, Campus Carolus Antwerpen, Faculty of Economics and Business, Korte Nieuwstraat 33, 2000 Antwerpen, Belgium;1. Institute of Interdisciplinary Information Sciences, Tsinghua University, Beijing, China;2. Institute of Theoretical Computer Science, School of Information Management and Engineering, Shanghai University of Finance and Economics, Shanghai, China;1. School of Business Administration, Chung-Ang University, Seoul 156-756, Republic of Korea;2. Department of Finance, College of Business and Innovation, University of Toledo, OH 43606, USA |
| |
| Abstract: | This paper presents a simple framework for the valuation of compound options within shadow costs of incomplete information and short sales. The shadow cost includes two components. The first component is the product of pure information cost due to imperfect knowledge and heterogeneous expectations. The second component represents the additional cost caused by the short-selling constraint. Information costs are linked to Merton's (1987. Journal of Finance 42, 510) model of capital market equilibrium with incomplete information, CAPMI. This model is extended by Wu et al. (1996. Review of Quantitative Finance and Accounting, 7, 136) who propose an incomplete-information capital market equilibrium with heterogeneous expectations and short sale restrictions, GCAPM. This model is used in our paper to provide for the first time in the literature analytic solutions for derivatives in the presence of both shadow costs of incomplete information and short sales.When deriving the compound call option formula, we consider a call option on a stock, which is itself an option on the assets of the firm. Our methodology incorporates shadow costs of incomplete information and short sales on the firm's assets as well as the effects of leverage in the capital structure. The formula can be useful in the valuation of several corporate liabilities in the presence of information uncertainty and short sales constraints about the firm and its cash flows. Our analysis can be used for the valuation of several real options. |
| |
| Keywords: | Valuation of the firm Options Arbitrage Pricing Information costs Short sales costs |
| 本文献已被 ScienceDirect 等数据库收录！ |
|
