Implementing fisher Black's simple discounting rule

Loderer, Claudio; Roth, Lukas; Long, John B (2010). Implementing fisher Black's simple discounting rule. Journal of Applied Corporate Finance, 22(2), pp. 60-68. Wiley-Blackwell 10.1111/j.1745-6622.2010.00274.x

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We propose a simple implementation of Black’s (1988) elegant rule for discounting uncertain future cash flows. Black’s rule avoids the thorny problem of estimating an appropriate risk-adjusted discount rate. Instead, the rule calls for discounting conditional mean cash flows at appropriate riskless interest rates. Our contribution in this article is to describe and illustrate a method of estimating the conditional mean cash flows called for in Black’s rule. The method is quite flexible with respect to the types of information available concerning the distributions of future cash flows. We argue that this approach to computing present values offers a theoretically sound and generally feasible addition to the toolbox of financial managers.

Item Type:

Journal Article (Original Article)

Division/Institute:

03 Faculty of Business, Economics and Social Sciences > Other Institutions > Teaching Staff, Faculty of Business, Economics and Social Sciences
03 Faculty of Business, Economics and Social Sciences > Department of Business Management > Institute of Financial Management

UniBE Contributor:

Loderer, Claudio

Subjects:

300 Social sciences, sociology & anthropology > 330 Economics

ISSN:

1745-6622

Publisher:

Wiley-Blackwell

Language:

English

Submitter:

Karin Dolder

Date Deposited:

03 Feb 2014 20:31

Last Modified:

15 Jan 2015 08:41

Publisher DOI:

10.1111/j.1745-6622.2010.00274.x

BORIS DOI:

10.7892/boris.39412

URI:

https://boris.unibe.ch/id/eprint/39412

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