Two Dimensions of Financial Asset Pricing: Expected Cash Flow and no Arbitrage
Abstract
In terms of intrinsic value measurement, different from general commodities, financial assets pursue the right to claim future returns, and their value is reflected in the expected rate of return, which is determined by the expected cash flow brought by the unit asset. In the market supply and demand equilibrium, the price of general commodities is determined by the traditional economic supply and demand equilibrium, while the value of financial assets is determined by the arbitrage equilibrium. This paper presents a mathematical model of the return on financial assets in two periods, and explains how to estimate it from the perspective of expected cash flow and no arbitrage.
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DOI: http://dx.doi.org/10.18686/mmf.v6i9.9990
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