Shadowing

AAA

DEFINITION of 'Shadowing'

The process of creating values for variables that don't rely purely on market value. Some of these variables have a market value in the present but have indeterminable future market values due to variable conditions.

Shadowing is used as in cost-benefit analysis, which allows analysts to evaluate the future comprehensive value of a variable in any number of projected conditions.

INVESTOPEDIA EXPLAINS 'Shadowing'

Shadowing calculates a shadow price for the variable rather than relying solely on market price, which is how the value of economic variables tends to be measured. This hypothetical shadow price is calculated largely based on the opportunity costs and benefits of the projected scenario. By taking into account the potential costs and benefits of any given scenario, the value of the variable then reflects those circumstances in its determined worth.

RELATED TERMS
  1. Cost-Benefit Analysis

    A process by which business decisions are analyzed. The benefits ...
  2. Opportunity Cost

    1. The cost of an alternative that must be forgone in order to ...
  3. Shadow Pricing

    1. The actual market value of one share of a money market fund. ...
  4. Benefit Cost Ratio - BCR

    A ratio attempting to identify the relationship between the cost ...
  5. Future Value - FV

    The value of an asset or cash at a specified date in the future ...
  6. Capital Budgeting

    The process in which a business determines whether projects such ...
RELATED FAQS
  1. What are the benefits of using ceteris paribus assumptions in economics?

    Most, though not all, economists rely on ceteris paribus conditions to build and test economic models. The reason they do ... Read Full Answer >>
  2. What is the difference between the rule of 70 and the rule of 72?

    The rule of 70 and the rule of 72 give rough estimates of the number of years it would take for a certain variable to double. ... Read Full Answer >>
  3. What is the risk return tradeoff for bonds?

    Macaulay duration and modified duration are mainly used to calculate the durations of bonds. The Macaulay duration calculates ... Read Full Answer >>
  4. What is the formula for calculating the capital to risk weight assets ratio for a ...

    Use the Macaulay duration to calculate the duration of a zero-coupon bond. The resulting Macaulay duration of a zero-coupon ... Read Full Answer >>
  5. How do I calculate how long it takes an investment to double (AKA 'The Rule of 72') ...

    You can calculate the approximate amount of years it would take an investment to double, given the annual expected rate of ... Read Full Answer >>
  6. How valuable is the forward rate as an overall economic indicator?

    Any given forward rate is theoretically equal to its corresponding spot rate plus future expectations. Many investors and ... Read Full Answer >>
Related Articles
  1. Entrepreneurship

    Getting To Know Business Models

    Learning how to assess business models helps investors identify companies that are the best investments.
  2. Active Trading Fundamentals

    Bet Smarter With The Monte Carlo Simulation

    This technique can reduce uncertainty in estimating future outcomes.
  3. Fundamental Analysis

    Monte Carlo Simulation With GBM

    Learn to predict future events through a series of random trials.
  4. Fundamental Analysis

    Calculating the Herfindahl-Hirschman Index (HHI)

    The Herfindhal-Hirschman Index, (HHI) is a measure of market concentration and competition among market participants.
  5. Investing

    How To Implement A Smart Beta Investing Strategy

    Smart beta investing is the notion of re-writing investment rules to improve investment outcomes by targeting exposures to intuitive ideas or factors.
  6. Investing

    Market Crisis: Does Diversification Still Work?

    If you still aren’t sold on the benefits of international diversification, you may object that: Diversification didn’t work during the last market crisis.
  7. Economics

    Explaining the Value Chain

    A model of how businesses receive raw materials as input, add value to the raw materials, and sell finished products to customers.
  8. Fundamental Analysis

    Explaining Variance

    Variance is a measurement of the spread between numbers in a data set.
  9. Investing Basics

    Understanding Risk-Return Tradeoff

    The essence of risk-return tradeoff is embodied in the common phrase “no risk, no reward.”
  10. Economics

    What Is Supply?

    Supply is the amount of goods a producer is willing to produce at a given price, and is one of the most basic concepts in economics.

You May Also Like

Hot Definitions
  1. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  2. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  3. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  4. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
  5. Risk Premium

    The return in excess of the risk-free rate of return that an investment is expected to yield. An asset's risk premium is ...
  6. Product Line

    A group of related products manufactured by a single company. For example, a cosmetic company's makeup product line might ...
Trading Center