Calculating First Moments and Confidence Intervals for Generalized Stochastic Dividend Discount Models
Abstract: This paper presents models of equity valuation where future dividends are assumed to follow a generalized Bernoulli process consistent with the actual dividend payout behavior of many firms. This uncertain dividend stream induces a probability distribution of present value. We show how to calculate the first moment of this distribution using functional equations. As well, we demonstrate how to calculate a confidence interval using Monte Carlosimulation. This first moment and interval allows an analyst to determine whether a stock is overor under-valued.
Cite this paper: W. Hurley, "Calculating First Moments and Confidence Intervals for Generalized Stochastic Dividend Discount Models," Journal of Mathematical Finance, Vol. 3 No. 2, 2013, pp. 275-279. doi: 10.4236/jmf.2013.32027.
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