Distribution of present value under different processes for future payoffs

• Amado Peiró ^[1]
  1. [1] Universitat de València

     Universitat de València

     Valencia, España

     
• Localización: Notas técnicas: [continuación de Documentos de Trabajo FUNCAS], ISSN-e 1988-8767, Nº. 764, 2015
• Idioma: inglés
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• Resumen

  • This paper presents the distribution of t he present value of a project or asset under different processes for future payoffs. For all hypothesized processes, the coefficient of variation (rela tive uncertainty) is proporti onal to the coefficient of variation of the nex t payoff, the factor of proportionality be ing function of the discount rate. The variability of the present value may increase or decrease with respect to the discount rate, depending on the type of process. It is higher when payoffs follow a random walk than for the hypo thesized processes with independent payoffs, and becomes extremely large for low discount rates.