Article ID: | iaor20071610 |
Country: | United States |
Volume: | 29 |
Issue: | 2 |
Start Page Number: | 191 |
End Page Number: | 212 |
Publication Date: | May 2004 |
Journal: | Mathematics of Operations Research |
Authors: | Kou S.G., Kou S.C. |
Keywords: | diffusion process |
Since growth stocks tend to have low or even negative earnings and high volatility, it is a great challenge to derive a meaningful mathematical model within the traditional valuation framework. This paper attempts to derive a suitable diffusion model for growth stocks by using the idea of size distribution. Numerical illustration of the model based on the data covering the time period of the recent boom and burst of the ‘Internet bubble’ is also presented.