NO.PZ202205190400000301
问题如下：
Q. Discuss Smith’s method for estimating the increase in return expectations derived from increasing the endowment allocation to private equity.选项：
解释：
SolutionPrivate equity is recognized as an illiquid alternative investment and may offer higher returns via a liquidity premium.
The illiquidity premium (also called the liquidity premium) is the expected compensation for the additional risk of tying up capital for a potentially uncertain time period. It can be estimated, as Smith has done, by using the idea that the size of a discount an investor should receive for such capital commitment is represented by the value of a put option with an exercise price equal to the hypothetical “marketable price” of the illiquid asset as estimated at the time of purchase. Smith can derive the price of the illiquid private equity asset by subtracting the put price from the “marketable price.” If both the “marketable price” and the illiquid asset price are estimated or known, then the expected return for each can be calculated, with the difference in expected returns representing the illiquidity premium (in %).
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