Stock valuation along a Markov chain

  • Authors:

  • Luca L. Ghezzi;Carlo Piccardi

  • Affiliations:

  • Istituto di Metodi Quantitativi, Università Cattaneo, Corso Matteotti 22, 21053 Castellanza (Varese), Italy;Dipartimento di Elettronica e Informazione, Politecnico di Milano, Piazza Leonardo da Vinci 32, 20133 Milano, Italy

  • Venue:
  • Applied Mathematics and Computation
  • Year:
  • 2003

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Abstract

A novel dividend valuation model is put forward by using a Markov chain. The valuation procedure turns out to be very simple, since it requires the solution of a system of linear equations. The dividend valuation model is in accordance with the empirical evidence whereby dividend-price ratios can change as time proceeds. Moreover, it offers fresh insights into previous dividend valuation models.