News » Carried Interest Valuation

The carried interest within a call option pricing framework, which takes into account the hurdle rate of return and catch-up features typically found in PE contracts and the other characteristics of the PE fund’s carried interest. The value of the carried interest can be expressed as the difference between the values of two BSM call option positions. We show that a workable Carried Interest Valuation model that respects the critical features of the PE carried interest can be developed. Our model contains a combination of BSM call option values as components.