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The Transactional Assets Pricing Approach and Income Capitalization Models in Professional Valuation: Towards a “Quick” Income Capitalization Format

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  • Michaletz Vladimir B.

    (Russian Society of Appraisers)

  • Artemenkov Andrey

    (International Valuation Centre (IVC), State University of Management)

Abstract

The transactional assets pricing approach within valuation theory (TAPA) reviewed in this paper and developed by the authors, now more than a decade ago (MICHALETZ, ARTEMENKOV A. & ARTEMENKOV L., (2007), has found many applications in professional valuation practices dealing with illiquid assets (Leyfer 2006; Andrews 2011)). Consequently, challenges have arisen to ascertain its performance and develop tools, on its basis, which can be employed by valuers in their everyday practice and which are aligned as much as possible with the income approach tools used by them in their professional work. This paper proposes modifications to the standard direct income capitalization technique to align it as closely as possible with the results derivable under the applications of the TAPA basic pricing formula. The authors develop the respective adjustments using the Taylor series expansion and then, using a simulation technique, outline the performance of the resulting modified (“quick”) income capitalization model against the TAPA benchmark. The findings indicate that such a modified (“quick”) income capitalization approach has reasonable accuracy, which makes it amenable to direct usage in valuation practice, given the described assumptions.

Suggested Citation

  • Michaletz Vladimir B. & Artemenkov Andrey, 2018. "The Transactional Assets Pricing Approach and Income Capitalization Models in Professional Valuation: Towards a “Quick” Income Capitalization Format," Real Estate Management and Valuation, Sciendo, vol. 26(1), pages 89-107, March.
    • Handle: RePEc:vrs:remava:v:26:y:2018:i:1:p:89-107:n:8
    DOI: 10.2478/remav-2018-0008
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    References listed on IDEAS

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    3. Cichulska Aneta & Wisniewski Radosław, 2017. "Issue Of Risk In Literature," Real Estate Management and Valuation, Sciendo, vol. 25(3), pages 74-86, September.
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    More about this item

    Keywords

    Transactional Assets Pricing Approach; discount rates; Direct income capitalization; Gordon growth model; Inwood model; Ring model; Professional Valuation;
    All these keywords.

    JEL classification:

    • D46 - Microeconomics - - Market Structure, Pricing, and Design - - - Value Theory
    • D49 - Microeconomics - - Market Structure, Pricing, and Design - - - Other
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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