Valuation

Valuation refers to the process of determining the true value of an asset, either through rigorous analysis of the key drivers which determines its value or using a comparable asset to determine its value.

It is to be noted that valuation involves a lot of assumptions by the person doing the valuation and such assumptions are subjective, so there can be different values perceived by different valuers.

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Valuation of an asset is done by the investors to typically take either long or short position in the asset.

If the valuation shows that the true value of the asset is more than its current market price, then the investor would go long or buy the asset and if the true value of the asset is less than the market value then the investor would go short or sell the asset.