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David Addison

"In mathematical terms, the graph of a stock’s price does not correspond to the graph of a company’s value, but approximates the second derivative of that graph."

In options theory, this might be referred to as gamma.

Options and equity may be valued using similar methods which discount all the things which contribute to fair value:
1. intrinsic value
2. delta (growth rate)
3. gamma (growth rate of the growth rate)
4. rho (sensitivity to interest rates)
and more...

Valuing equity was actually an original use-case of the original models: Merton (1973); Black-Scholes (1973); Cox & Ross (1976); and Geske (1978). This particular use case never found a wide following though, I believe because the models resided in random-walk world. The solution to the problem is, I think, using this framework to value a stochastic annuity.

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