Hello,
i was just wondering what method you would use when valuing illiquid assets? Would you compare it to a comparable liquid asset? Just use a modified DCF? Thanks
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I think you meant illiquid* in your post. Anyways, there are many opposing theories. Check out Damodaran's paper on the illiquidity discount. The process my firm takes involves looking at the bid-ask spread of a comparable company on its restricted securities. It then becomes a discount on the derived equity value. This is from a company perspective, but I feel the idea of applying a form of illiquidity discount applies to any asset. You can also use the Finnerty model or Black-Scholes if you believe those models accurately reflect the discount for not being able to easily trade.
Just trying to get some information to bring up in an internship interview, thank you +SB!
What kind of asset we talking about her bud?
The firm does illiquid real estate, private businesses, restricted securities, stock options, and bankruptcy claims. I don't think they'll expect me to know them all or even the process 100% but I feel throwing some facts out there would be good for my case, coming from a non target with no valuation experience.
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