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The valuation of a firm advertising optimally

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  • Epstein, D.
  • Mayor, N.
  • Schonbucher, P.
  • Whalley, A. E.
  • Wilmott, P.

Abstract

In this paper we model the value of a firm based on its current earnings and cash balances. The value is modelled on the assumption that earnings follow a mean-reverting process. The effect of advertising on earnings is modelled, and the condition for optimal advertising derived. The value of the firm is derived as the solution to a partial differential equation. The way in which this value depends on the legal structure and banking arrangements of the firm is discussed.
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  • Epstein, D. & Mayor, N. & Schonbucher, P. & Whalley, A. E. & Wilmott, P., 1998. "The valuation of a firm advertising optimally," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(2), pages 149-166.
    • Handle: RePEc:eee:quaeco:v:38:y:1998:i:2:p:149-166
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    Cited by:

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    2. Lander, Diane M. & Pinches, George E., 1998. "Challenges to the Practical Implementation of Modeling and Valuing Real Options," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(3, Part 2), pages 537-567.
    3. Bouasker, O. & Letifi, N. & Prigent, J.-L., 2016. "Optimal funding and hiring/firing policies with mean reverting demand," Economic Modelling, Elsevier, vol. 58(C), pages 569-579.
    4. Steven Li, 2002. "A valuation model for firms with stochastic earnings," School of Economics and Finance Discussion Papers and Working Papers Series 122, School of Economics and Finance, Queensland University of Technology.
    5. Marcel Philipp Müller & Sebastian Stöckl & Steffen Zimmermann & Bernd Heinrich, 2016. "Decision Support for IT Investment Projects," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 58(6), pages 381-396, December.
    6. Steven Li, 2003. "A valuation model for firms with stochastic earnings," Applied Mathematical Finance, Taylor & Francis Journals, vol. 10(3), pages 229-243.
    7. Juan Pineiro-Chousa & Marcos Vizcaíno-González, 2020. "A mathematical model for the role of third party funding in reputation building of academic institutions," Review of Managerial Science, Springer, vol. 14(2), pages 365-377, April.
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    9. Aloys Prinz & Jan Piening & Thomas Ehrmann, 2015. "The success of art galleries: a dynamic model with competition and information effects," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 39(2), pages 153-176, May.

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