Hi All,
When I was in school I did a case in one of advanced finance courses where it was about an European PE firm buying a technology company. The idea was to analyze the deal and value based on various assumptions and situations. It seems the true solution of the case and the one that the case-writer was trying to get across was the value of using Monte Carlo and crystal ball in a situation like this. Where you can come up with schoastic graphs to show where and what circumstances the deal hits the right IRR upon when the PE firm was looking for its exit 3-5 years down the line.
I wondering if some PE firms actually do this in the real life with deals they are looking at. I know most bankers do not use such techniques, few trading desks and only economic consultants in public policy use monte carlo most of the time.
I know the PE firm from this case in particular heavily uses Monte Carlo and such things to help make their decisions and evaluate their models.
But how about the rest of PE firms out there? Same goes for VC firms, though I could see the value monte carlo much more on the VC side.
Yes, they do, mostly to price various securities or options. Monte Carlo simulations are the most basic method for accurately producing pricing information from random numbers.
Weak Law of Large Numbers would be more basic and a better finite approximation for random sample.
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