Analysis of correlated risky cash flow

In the analysis of a single cash-flow profile under risk, between-period dependency among cash flows raises considerable difficulty in the evaluation of the profile's net present value. It is assumed in this paper that the cash-flow profile exhibits a first-order autoregressive time-series stru...

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Published in:International journal of production economics 1993-11, Vol.32 (3), p.269-276
Main Authors: Hui, Y.V., Leung, L.C., Huang, J.S.
Format: Article
Language:English
Subjects:
Applied sciences
Cash flow
Economic models
Exact sciences and technology
Net present value
Operational research and scientific management
Operational research. Management science
Portfolio theory
Studies
Time series
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description In the analysis of a single cash-flow profile under risk, between-period dependency among cash flows raises considerable difficulty in the evaluation of the profile's net present value. It is assumed in this paper that the cash-flow profile exhibits a first-order autoregressive time-series structure, with the trend of the AR(1) process being a deterministic AR(1) in itself. The relevant parameters, however, are unknown. It is also assumed that the estimates of the cash-flow in every period are available. Applying an “error-in-variable” analysis on the estimates, the relevant parameters of the time-series model are derived. This then allows the mean and variance of the profile's NPV to be subsequently evaluated.
doi_str_mv 10.1016/0925-5273(93)90040-R
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source Backfile Package - Business, Management and Accounting (Legacy) [YBT]; Backfile Package - Decision Sciences [YDT]
subjects Applied sciences
Cash flow
Economic models
Exact sciences and technology
Net present value
Operational research and scientific management
Operational research. Management science
Portfolio theory
Studies
Time series
title Analysis of correlated risky cash flow
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