A General Option Valuation Approach to Discount for Lack of Marketability

BVResearch Pro
American Society of Appraisers Business Valuation Review™
Winter 2016 Volume 35, Issue 4 pp. 135-148
Robert Brooks, Ph.D.

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discounts & premiums
discount for lack of marketability (DLOM), valuation approaches, put option

Summary

A general option-based approach to estimating the discount for lack of marketability is offered. It is general enough to capture maturity, volatility, hedging availability, and investor skill, as well as other important factors. The model is shown to contain several option-based models as special cases. The model also contains two weighting variables that provide valuation professionals much needed flexibility in addressing the unique challenges of each nonmarketable valuation assignment. Selected prior empirical results are reinterpreted with this approach.
A General Option Valuation Approach to Discount for Lack of Marketability
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