The Stochastic Model of the Investment Strategy for Trade Credit

• Main Authors: Po-Yuan Chen, 陳伯源
• Other Authors: Horng-Jinh Chang
• Format: Others
• Language: zh-TW
• Published: 2011
• Online Access: http://ndltd.ncl.edu.tw/handle/25639671849275500239

博士 === 淡江大學 === 管理科學研究所博士班 === 99 === In the world surrounded by uncertainties ranging from financial crisis to currency war, the volatility of commodity price, interest rate and foreign exchange rate significantly affects the stability of corporate earnings. However, many frameworks of corporate valuation did not explicitly take into account risk factors, which the thesis intends to incorporate in a valuation model for a firm with trade credit under price and interest rate uncertainties. Analytical solutions for corporate value under uncertainties are derived and used as the basis of further formulation for the real option value, representing the investment profits for such a firm with trade credit under uncertainties. The stochastic dynamic programming and Monte Carlo simulation approaches are employed to derive the real option value. This thesis integrates the stochastic interest rate model of Merton (1973) and the geometric Brownian motion model of price into a framework for corporate valuation when a firm facing both the price and the interest rate risks. The risks are propagated from the price, the interest rate, the future cash flows to the corporate value. The supplier allows the firm to defer its merchandise payments due to the trade credit terms. To obtain more earnings, the firm has an opportunity to invest the deferred payment amounts in interest-bearing financial instruments. Other factors considered in this framework include the cost rate, the market share, the price elasticity of demand, and the time length of credit period. The analytical solution for corporate value is derived. Subsequently, the analytical and numerical solutions for the investment threshold and the real option value are obtained. The sensitivity analyses of the corporate value, the investment threshold, and the real option value are performed in illustrations. The managerial implications provide an insight into the investment strategy for the firm under uncertainties.