Equity Valuation Based On The Utility Function And Empirical Analysis

With the development of economy in China, capital market in China is developingstep by step, and the problem of capital pricing is more and more important for us.This thesis studied on how to price stocks of companies. A stock of a company is aperpetual financial contract between the company and the owner of the stock thatentitles the owner of a dividend payment from the company. The underlying of the stockis different kinds of cash flows. We selected the book value, the net income, the growthrate of the net income as well as the stochastic dividend policy as factors, and portrayedtheir movements with SDEs, to build a model for equity valuation. Furthermore, takinginto account the impact of market factors, we added the tradable economic indicator andthe turnover rate to build a second model. Then we applied the theory of CARAindifference pricing in the two models to get their pricing PDEs respectively, and finallyto get their explicit solutions, i.e, price formulas of the equity in some special case.After this the empirical analysis can be done through price formulas. From results of theempirical analysis we can see that the second model which considered market factorscan describe the practical stock price better. Our study has a practical significance ininvesting into stock markets.