There seems to be surprisingly little literature on this topic. If you had a portfolio consisting of an unlisted illiquid private asset class (eg private real estate, direct infrastructure or private equity), valued quarterly, how would you measure its sensitivity to a parallel shift in interest rates?

There are unique obstacles with these asset classes, such as lack of data/smoothed returns, flow-through from the interest rate to the discount rate, impact on income stream, etc.

Does anyone have any experience in this field? Could you point out any good references or papers?

  • I think determining interest rate sensitivity is not really the issue here - in terms of discounting that is well covered. It rather seems your question is more about what to discount. As you say each asset is unique and has speciality considerations all of which are likely to be far more substantial. If stochastic then you might return a stochastic measure of interest rate risk. Its still likely to be one of the lesser concerns associated with these types of assets however. But if anyone comes up with a reference I'm also interested to review. – Attack68 Mar 18 at 11:13

When you invest on private real estate or infrastructure, it pays you coupons periodically. So you can treat them as a bond. You can use a credit spread plus libor curve for discounting. the credit spread can be solved by matching the model price to market price. Here the trader needs to estimate a market price for the asset. After than, computing sensitivities are straightforward.

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