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To quote Wikipedia:

In hyperbolic discounting, valuations fall very rapidly for small delay periods, but then fall slowly for longer delay periods. This contrasts with exponential discounting, in which valuation falls by a constant factor per unit delay, regardless of the total length of the delay.

Hyperbolic Discounting

This concept has been viewed as a possible structure for the construction of utility functions, but I'm interested in its application to security valuation. As you may know, asset valuation - at least for equities - is dominated by discounted cash flow (DCF) analysis, which is a time-consistent method of valuation.

Do any models exist to value securities using hyperbolic discounting? If not, how would one go about creating such a model?


migrated to quant.stackexchange.com by Turukawa May 3 '12 at 18:11

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