Assets or liabilities with stochastic cash-flows possibly embedding minimum guarantees, in the Economic/Real Capital of the merging companies, represent additional values with respect to the traditional balance sheet, which could induce important differences in exchange ratios. This paper concerns a quantitative model for exchange ratios accounting, firstly introducing a stochastic pricing model in the presence of stochastic cash-flows and secondly representing contractual embedded real option such as minimum guarantees, in order to evaluate the differences in exchange ratios induced by Stochastic Capital Reserves in the merging companies.
Exchange ratios in a Merger with Stochastic Capital Reserves: Fair Valuation and Embedded Options
GIACOMELLO, Bruno
2008-01-01
Abstract
Assets or liabilities with stochastic cash-flows possibly embedding minimum guarantees, in the Economic/Real Capital of the merging companies, represent additional values with respect to the traditional balance sheet, which could induce important differences in exchange ratios. This paper concerns a quantitative model for exchange ratios accounting, firstly introducing a stochastic pricing model in the presence of stochastic cash-flows and secondly representing contractual embedded real option such as minimum guarantees, in order to evaluate the differences in exchange ratios induced by Stochastic Capital Reserves in the merging companies.
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