Hampus Engsner: Continuous-time limits of multi-period cost-of-capital valuations

Abstract: Multi-period cost-of-capital valuation is an approach to valuation of a cashflow subject to repeated capital requirements and resulting external capital injections to meet these capital requirements. In this paper we consider valuation of a liability cashflow for a sequence of partitions, defining the time periods, whose mesh tends to zero. That is, we consider existence and properties of continuous-time limits of discrete-time value processes. Moreover, we provide explicit and interpretable valuation formulas for a wide class of cashflow models.