Model Insights - Market-consistent valuation of ultra long-term cash flows
13th October 2008 - Read this Insights article authored by John Hibbert
Surely, there is no more fundamental task in financial management than placing a value on a certain future cash flow? Yet this basic task turns out to present a major challenge to economists and financial analysts and continues to be the subject of a heated debate among accountants, regulators, actuaries and firms’ CFOs.
In this note we will explain what can make this simple question so difficult to answer as well as highlighting some of our own work which is aimed at helping to build a consensus on what a reasonable set of answers could look like. Note that, while our focus is on financial entities carrying known liabilities, these ideas apply equally to the valuation of any certain cash flow.