The Value of a Financial Asset

The source of value for a commodity is a matter of deep importance to economists. However, there is a surprisingly weak bridge between the theoretical texts on microeconomics and the applications common in finance. In this section, we review with some rigor the concept of the value of a financial asset. From this we will introduce applications to model business operations and estimate their value.

188 The PDF shown in Equation 6 can produce non-integer numbers, but these are probabilities of certain integer values, not the values themselves. Random Poisson numbers always produce integers. For example, a Monte Carlo run of random Poisson numbers with lambda=.25 produced 100 numbers: mostly zeroes, some ones, and one two. The sum of all 100 numbers was 21; 21/100 is close to the mean arrival rate lambda=.25. For Monte Carlo tests of Poisson processes, see the Appendix to the working paper cited above.

0 0

Post a comment