Using Put Option–based DLOM Models to Estimate Discounts for Lack of Marketability

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American Society of Appraisers Business Valuation Review™
Fall 2013 Volume 31, Issue 4 pp. 165-170
John D. Finnerty, Ph.D.

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Summary

A recent article in BVR by Ashok Abbott (Abbott 2009) offers a novel interpretation of two alternative put option–based models for calculating a discount for lack of marketability (DLOM), a lookback put option model and an average-strike put option model, and compares them to the familiar Black-Scholes-Merton (BSM) put option model. Abbott proposes an adjustment to “correct” the overstated discounts that supposedly occur when these models are used to calculate a DLOM. This article takes issue with Abbott's DLOM interpretation and argues against making the adjustment he recommends.
Using Put Option–based DLOM Models to Estimate Discounts for Lack of Marketability
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