Abstract

MORALES BANUELOS, Paula. Selecting the model with the best fair value estimate in an emerging market. Rev. mex. econ. finanz [online]. 2020, vol.15, n.1, pp.81-103.  Epub July 03, 2020. ISSN 2448-6795.  https://doi.org/10.21919/remef.v15i1.396.

This work aims to find the model that provides the best possible estimate of the fair value of the items that comprise financial statements, considering the ambiguity in the regulations on the calculation of the same. For this purpose, three methodologies were compared: Discounted Cash Flows, Real Options under a Brownian Geometric Motion (BGM), and Real Options under an Arithmetic Brownian Motion (ABM). Although there have been few studies on this type of research, the conclusion reached is that modeling an additive process as an ABM is the most suitable. Therefore, the revenues and annual cash flow from 2019 to 2028 were projected, and, subsequently, the Real Options were calculated, incorporating expansion and contraction flexibility possibilities. The obtained results indicate that the model of Real Options under a BGM provides the best fair value estimate, coinciding with the suggestions of other authors. Consequently, it is recommended that Mexican companies know and implement this model, complementing the traditional valuation of discounted cash flows, in order to present relevant information for the decision-making process.

Keywords : G12; G13; C4; C5; C15; Discounted Cash Flows; Real Options as a Geometric Brownian Motion; Real Options as an Arithmetic Brownian Motion; GARCH (1,1); Winters’ Method.