Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/48440
Authors: 
Buchner, Axel
Kaserer, Christoph
Wagner, Niklas
Year of Publication: 
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

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