Spectral Methods and Pricing Options on Private Equity

21 Pages Posted: 2 May 2015

See all articles by Peter Carr

Peter Carr

New York University Finance and Risk Engineering

Pratik Worah

New York University (NYU) - Courant Institute of Mathematical Sciences

Date Written: April 29, 2015

Abstract

Over the past several years, researchers in economics and finance have used spectral methods to determine the structure of the stochastic discount factor. In this paper, we show that spectral methods can also be used to value an option on private equity. We show that the volatility of the equity is uniquely determined by the specification of a risk-neutral stochastic process for dividend yields along with the solution of a Sturm Liouville problem.

Suggested Citation

Carr, Peter P. and Worah, Pratik, Spectral Methods and Pricing Options on Private Equity (April 29, 2015). Available at SSRN: https://ssrn.com/abstract=2600684 or http://dx.doi.org/10.2139/ssrn.2600684

Peter P. Carr

New York University Finance and Risk Engineering ( email )

6 MetroTech Center
Brooklyn, NY 11201
United States
9176217733 (Phone)

HOME PAGE: http://engineering.nyu.edu/people/peter-paul-carr

Pratik Worah (Contact Author)

New York University (NYU) - Courant Institute of Mathematical Sciences ( email )

New York University
New York, NY 10012
United States

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