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Technische Universität München >
Center for Entrepreneurial and Financial Studies (CEFS), Technische Universität München >
CEFS Working Paper Series, Center for Entrepreneurial and Financial Studies, Technische Universität München >
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http://hdl.handle.net/10419/48440
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| Title: | | Stochastic modeling of private equity: an equilibrium based approach to fund valuation  |
| Authors: | | Buchner, Axel Kaserer, Christoph Wagner, Niklas |
| Issue Date: | | 2006 |
| Series/Report no.: | | CEFS working paper series 2006-02 |
| Abstract: | | In this paper, we present a new approach to measure the returns of private equity investments based on a stochastic model of the dynamics of a private equity fund. Our stochastic model of a private equity fund consists of two independent stages: the stochastic model of the capital drawdowns and the stochastic model of the capital distributions over a fund's lifetime. Capital distributions are assumed to follow lognormal distributions in our approach. A mean-reverting square-root process is applied to model the rate at which capital is drawn over time. Applying equilibrium intertemporal asset pricing consideration, we are able to derive closed-form solutions for the market value and time-weighted model returns of a private equity fund. |
| Subjects: | | Private Equity Funds Stochastic Modeling Mean-Reverting Square-Root Process Incomplete Markets |
| JEL: | | G24 D52 G13 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CEFS Working Paper Series, Center for Entrepreneurial and Financial Studies, Technische Universität München
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