The Log Private Company Valuation Model

Abstract

For a public company, the option pricing models, hedging models, and pricing models of equitylinked life insurance products have been developed. However, for a private company, because of unobserved price, the option and the life insurance pricing, and the hedging are challenging tasks. For this reason, this paper introduces a log private company valuation model, which is based on the dynamic Gordon growth model. In this paper, we obtain closed-form option pricing formulas, hedging formulas, and net premium formulas of equity-linked life insurance products for a private company. Also, the paper provides ML estimators of our model, EM algorithm, and valuation formula for the private company. The suggested model can be used not only by private companies but also by public companies