Valuation by using a fuzzy discounted cash flow model

Abstract

The objective of this paper is to extend the classical discounted cash flow (DCF) model by developing a fuzzy logic system that takes vague cash flow and imprecise discount rate into account. In order to explicitly discuss a more appropriate valuation model, uncertain information will be fuzzified as triangular fuzzy numbers to quantify and evaluate the intrinsic value of a company's financial asset under the framework of DCF approach. We will find that the fuzzy discounted cash flow (FDCF) model proposed in this paper is one extension of classical (crisp) model and should be more suitable to capture the elements of valuation than non-fuzzy models.