Estimating fund manager fees using option pricing model

This paper analyses the private equity fund compensation. We build a model to estimate the expected revenue of fund managers as a function of their investor contracts. We tried to evaluate the present value of the carried interest, which is one of the most common profit sharing arrangements observed in private equity funds. We applied the Monte Carlo simulation model and we introduced the non-marketability disco unt of the carried interest in order to calculate its fair value. The purpose of this paper is to determine the sensitivity of the expected carried interest fair value to the variation of its optional parameters.