STOCHASTIC ANALYTICAL APPROACH TO THE TIME FACTOR CONSIDERATION IN ASSETS VALUATION
This paper emphasizes the important role of assets valuation in assuring the transparency and stability of financial system as underlined by the international Basel Accord on banking supervision. One of the main aspect in this respect is necessity to take into account time factor influence that is especially important for secured lending operations, insurance processes, and in general for investment purposes where duration is essential.
Existing approaches for accounting this factor in assets valuation processes are based on empirical analyses of historical data followed by forecasts for the future time period. In this respect two main streamline of approaches are formed: based on smoothing the cyclicity of value change over time or “through cycle” type and skirting of market value evolution trend or “under cycle” type, respectfully.
In the paper, a new stochastic analytical model to consider time effect is proposed, which is based on the rational theory of warrant pricing developed by Samuelson. Analytical solution for estimation of proposed time factor Δ is presented. The influence of market value volatility, tendency of market future evolution and required level of certainty on this parameter is analyzed. General methodology of time effect assessment based on this “follow-the-cycle” type model is described.
Actual problems of international relations. Issue 150. 2022
Testing of the model applicability was demonstrated using the available information data set for the residential apartments market evolution in 2019-2021 in Ukraine which is monitored by consulting-engineering group “Veritex”.
Key words: assets valuation, prudent value assessment, secured lending, market value, Samuelson’s model, stochastic modelling, time factor.