Article 4, Volume 5 Issue 1

A Binomial Model with Edgeworth Expansion on Particular Circumstances

Author

Gaston Milanesi – (Universidad Nacional del Sur)

Emilio El Alabi – (Universidad Nacional del Sur)

Received July 15, 2018; accepted October 22, 2018.

Abstract

Contexts with high volatility and extreme events condition the value of the firm, its tax savings and continuity. These conditions must be contemplated for the employed valuation model. In that sense, the present paper’ basis is the classic binomial model incorporating: a) firm contingent states of continuity or dissolution; b) tax saving valuation like a basket of real options, and c) extreme events by Edgeworth transformation. The paper structures in the following manner: first it develops the binomial function changed with the Edgeworth extension and the construction of implicit binomial lattice. Then it develops a valuation adapted to the binomial model with Edgeworth expansion that incorporates contingent tax savings, continuity or liquidation scenarios and cost of bankruptcy. With a hypothetical case it is illustrated its functioning, and comparing the results obtained between situations with kurtosis and skewness or normally. Finally the main conclusions are exposed.

Los contextos con alta volatilidad y eventos extremos condicionan el valor de la empresa, su ahorro fiscal y su continuidad. Estas condiciones deben contemplarse para el modelo de valoración empleado. En ese sentido, la base del presente trabajo es el modelo binomial clásico que incorpora: a) estados contingentes firmes de continuidad o disolución; b) valoración del ahorro fiscal como una canasta de opciones reales, y c) eventos extremos por transformación de Edgeworth. El papel se estructura de la siguiente manera: primero desarrolla la función binomial cambiada con la extensión de Edgeworth y la construcción de una red binomial implícita. Luego, desarrolla una valoración adaptada al modelo binomial con la expansión de Edgeworth que incorpora el ahorro de impuestos contingentes, los escenarios de continuidad o liquidación y el costo de la bancarrota. Con un caso hipotético se ilustra su funcionamiento, y se comparan los resultados obtenidos entre situaciones con curtosis y asimetría o normalmente. Finalmente se exponen las principales conclusiones.

Citation

Milanesi, G. S. & El Alabi, E. (2018). A binomial model with Edgeworth expansion on particular circumstances.European Accounting and Management Review5(1), 69-93.

Figures

Keywords

  • Contingent States
  • Real options
  • Tax Savings
  • Edgeworth Expansion

Palabras clave

  • Estados contingentes
  • Opciones reales
  • Ahorro de impuestos
  • Expansión de Edgeworth

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