Quadratic hedging strategies for private equity fund payment streams
To better understand the relation between public markets and private equity, we consider quadratic hedging strategies to replicate the typical payment stream pattern associated with private equity funds by traded factors. Our methodology is inspired by the risk-minimization framework developed in fi...
| Main Author: | |
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| Format: | Article |
| Language: | English |
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KeAi Communications Co., Ltd.
2019-09-01
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| Series: | Journal of Finance and Data Science |
| Online Access: | http://www.sciencedirect.com/science/article/pii/S2405918819300327 |
| _version_ | 1797203194285129728 |
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| author | Christian Tausch |
| author_facet | Christian Tausch |
| author_sort | Christian Tausch |
| collection | DOAJ |
| description | To better understand the relation between public markets and private equity, we consider quadratic hedging strategies to replicate the typical payment stream pattern associated with private equity funds by traded factors. Our methodology is inspired by the risk-minimization framework developed in financial mathematics and applies the componentwise L2 Boosting machine learning technique to empirically identify feasible replication strategies. The application to US venture capital fund data further draws on a stability selection procedure to enhance model sparsity. Interestingly a natural connection to the famous Kaplan and Schoar (2005) public market equivalent approach can be established. Keywords: Private equity fund, Cash flow replication, Public market equivalent, Componentwise boosting, Machine learning |
| first_indexed | 2024-04-24T08:15:27Z |
| format | Article |
| id | doaj.art-da335a24fe2340979c84ac59e735daaa |
| institution | Directory Open Access Journal |
| issn | 2405-9188 |
| language | English |
| last_indexed | 2024-04-24T08:15:27Z |
| publishDate | 2019-09-01 |
| publisher | KeAi Communications Co., Ltd. |
| record_format | Article |
| series | Journal of Finance and Data Science |
| spelling | doaj.art-da335a24fe2340979c84ac59e735daaa2024-04-17T04:04:59ZengKeAi Communications Co., Ltd.Journal of Finance and Data Science2405-91882019-09-0153127139Quadratic hedging strategies for private equity fund payment streamsChristian Tausch0AssetMetrix GmbH, Theresienhöhe 13, D-80339 Munich, GermanyTo better understand the relation between public markets and private equity, we consider quadratic hedging strategies to replicate the typical payment stream pattern associated with private equity funds by traded factors. Our methodology is inspired by the risk-minimization framework developed in financial mathematics and applies the componentwise L2 Boosting machine learning technique to empirically identify feasible replication strategies. The application to US venture capital fund data further draws on a stability selection procedure to enhance model sparsity. Interestingly a natural connection to the famous Kaplan and Schoar (2005) public market equivalent approach can be established. Keywords: Private equity fund, Cash flow replication, Public market equivalent, Componentwise boosting, Machine learninghttp://www.sciencedirect.com/science/article/pii/S2405918819300327 |
| spellingShingle | Christian Tausch Quadratic hedging strategies for private equity fund payment streams Journal of Finance and Data Science |
| title | Quadratic hedging strategies for private equity fund payment streams |
| title_full | Quadratic hedging strategies for private equity fund payment streams |
| title_fullStr | Quadratic hedging strategies for private equity fund payment streams |
| title_full_unstemmed | Quadratic hedging strategies for private equity fund payment streams |
| title_short | Quadratic hedging strategies for private equity fund payment streams |
| title_sort | quadratic hedging strategies for private equity fund payment streams |
| url | http://www.sciencedirect.com/science/article/pii/S2405918819300327 |
| work_keys_str_mv | AT christiantausch quadratichedgingstrategiesforprivateequityfundpaymentstreams |