In a dispute arising over a hedge fund failure, Cornerstone Research was asked to value the bodog app download that managed the fund and to assess how the bodog app download’s value was affected by the fund’s performance.
In a dispute arising over a hedge fund failure, Cornerstone Research was asked to value the bodog app download that managed the fund and to assess how the bodog app download’s value was affected by the fund’s performance. Cornerstone Research worked with a prominent finance professor to develop and apply a methodology to value the management bodog app download given the contracts between the bodog app download and its investors.
Option pricing theory provided the framework for estimating the value of investments in the bodog app download.
The value of a hedge bodog app download management enterprise is based on its expected flow of bodog app download management and incentive fees. Noting that the payoff from the flow of fees is analogous to a payoff of an option contract, we developed an option pricing framework to calculate the present discounted value of expected fees. Because fees also depend on the size of the assets being managed, we used a regression model to predict the net flow of assets into the bodog app download. The model relied on a large sample of hedge bodog app download performance data and predicted bodog app download flow as a function of the bodog app download’s past performance, size, age, investment strategy, and other variables.
Valuing the bodog app download also required assessing its capital structure, which included several classes of privately issued equity and debt governed by contracts involving complex contingent claims. The realized value of investments in the managing bodog app download depended, for example, on contingencies related to the bodog app download’s potential default on debt repayments and options to convert debt to equity. Realization of these contingencies depended on, among other things, the performance of the fund and the management bodog app download. Again, option pricing theory provided the framework for estimating the value of investments in the bodog app download.