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| Author: | Jennergren, L. P. |
| Title: | Valuation by linear programming - a pedagogical note |
| Journal: | Journal of Business Finance and Accounting
1990 : WINTER, VOL. 17:5, p. 751-756 |
| Index terms: | CASH FLOW LINEAR PROGRAMMING VALUATION PRICING CASH ACCOUNTING |
| Language: | eng |
| Abstract: | Cash flows can be valued by means of linear programming formulations in some cases. Three simple examples of such formulations are given. The first one refers to the valuation of a subsidized loan, the second one to the valuation of a riskfree cash flow, and the third one to the pricing of an option where the price of the underlying stock moves in a binominal fashion. As seen from the examples, it is an arbitrage - like characteristic which enables the application of linear programming: the dominance property of alternatives leads naturally to linear constraints. |
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