"An alternative approach to the valuation of cash flows"
In some cases of cash flow valuation, the standard approach of using
no-arbitrage arguments is not a good modelling principle. Instead of
focusing on the financial market and its traded asset, the main object
in this approach is the cash flow. The cash flows are modelled as quite
general stochastic processes, and by applying a representation theorem
from the general theory of processes we are able to study the behaviour
of valuation principles, as well as properties of the stochastic
discount factor they imply. The valuation approach presented is
especially useful when there is no underlying financial market, as is
often the case when valuing cash flows arising from insurance contracts,
in real option applications and when valuing certain derivatives, such
as futures, when there is a non-trading underlying asset.