A hedge fund with net asset value of $101 per share currently has a high water mark
Fantastic news! We've Found the answer you've been seeking!
Question:
a. What is the value of the annual incentive fee according to the Black-Scholes formula? (Treat the risk-free rate as a continuously compounded value to maintain consistency with the Black-Scholes formula.)
b. What would the annual incentive fee be worth if the fund had no high water mark and it earned its incentive fee on its total return?
c. What would the annual incentive fee be worth if the fund had no high water mark and it earned its incentive fee on its return in excess of the risk-free rate?
d. Recalculate the incentive fee value for part (b) assuming that an increase in fund leverage increases volatility to 45%.
Related Book For
Posted Date: