Equity valuation under stock dilution and buy-back

Yaling Cui; Srdjan D. Stojanovic

doi:10.3934/dcdsb.2012.17.1809

Article Contents

2012, Volume 17, Issue 6: 1809-1829. Doi: 10.3934/dcdsb.2012.17.1809

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Equity valuation under stock dilution and buy-back

Yaling Cui^1, and
Srdjan D. Stojanovic^2,

1.
Financial Engineering Research Center, Soochow University, Suzhou, Jiangsu 215006
2.
Department of Mathematical Sciences, University of Cincinnati, Cincinnati, OH 45221-0025

Received: May 2011

Revised: December 2011

Published: September 2012

Abstract / Introduction Related Papers Cited by

Abstract

Employing and generalizing the (continuous time, incomplete market) equity valuation (and hedging) theory introduced recently by one of the authors, the effect of stock dilution and buy-back on the equity value is quantified. Both, neutral and indifference pricing methodologies are considered, and results of different levels of complexity are provided. Hedging results are provided as well. Both pricing and hedging results are obtained as special cases of the general methodology of pricing and hedging in incomplete markets recently developed by one of the authors.

Keywords:

Mathematics Subject Classification: Primary: 91G20, 91G80; Secondary: 35K55.

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