Estimating the volatility and economic risk of non-traded illiquid assets such as private equity and real estate has been relatively primitive compared to the analytically sophisticated models available for traded equities and fixed income securities. This relatively crude understanding of risk has made illiquid assets seem less volatile than they really are and masked the extent to which traded and private assets are correlated. In this article, we present a conceptual framework that efficiently addresses both biases.

Dan diBartolomeo