Arbeitspapier

Learning, structural instability and present value calculations

Present value calculations require predictions of cash flows both at near and distant future points in time. Such predictions are generally surrounded by considerable uncertainty and may critically depend on assumptions about parameter values as well as the form and stability of the data generating process underlying the cash flows. This paper presents new theoretical results for the existence of the infinite sum of discounted expected future values under uncertainty about the parameters characterizing the growth rate of the cash flow process. Furthermore, we explore the consequences for present values of relaxing the stability assumption in a way that allows for past and future breaks to the underlying cash flow process. We find that such breaks can lead to considerable changes in present values.

Language
Englisch

Bibliographic citation
Series: CESifo Working Paper ; No. 1650

Classification
Wirtschaft
Asset Pricing; Trading Volume; Bond Interest Rates
Bayesian Analysis: General
Insurance; Insurance Companies; Actuarial Studies
Subject
present value
stock prices
structural breaks
Bayesian learning
Dynamische Investitionsrechnung
Abzinsung
Stochastischer Prozess
Strukturbruch
Bayes-Statistik
Wertpapieranalyse
Schätzung
Theorie
USA

Event
Geistige Schöpfung
(who)
Pesaran, Mohammad Hashem
Pettenuzzo, Davide
Timmermann, Allan
Event
Veröffentlichung
(who)
Center for Economic Studies and ifo Institute (CESifo)
(where)
Munich
(when)
2006

Handle
Last update
10.03.2025, 11:44 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Pesaran, Mohammad Hashem
  • Pettenuzzo, Davide
  • Timmermann, Allan
  • Center for Economic Studies and ifo Institute (CESifo)

Time of origin

  • 2006

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