A Note on the Value Additivity of Certainty Equivalents

  • Peter Reichling
  • Thomas Spengler
  • Bodo Vogt
Schlagworte: Company valuation, value additivity, certainty equivalent

Abstract

We show that, if value additivity is required, the use of certainty equivalents in company valuation implies both constant absolute and constant relative risk aversion. An investor only exhibits constant absolute and constant relative risk aversion at the same time when he is risk neutral. However, this in turn makes the use of certainty equivalents redundant.

Veröffentlicht
2018-09-13
Ausgabe
Rubrik
Artikel