Laro/Hitchner qualify DLOM models and methods

BVWireIssue #82-1
July 8, 2009


We have continued to receive more responses to the BVWire™ item that quoted U.S. Tax Court Judge David Laro as having become “well-acquainted with the five models most commonly used to calculate marketability discounts.” Understandably, the impartial judge threw out a quick lifeline to a “real” expert, Jim Hitchner of the Financial Valuation Group, who will serve as moderator of this October’s 2nd Annual University of San Diego School of Law, Business Valuation and Tax Conference, which will cover all the well-known models in detail and may address some newer ones. Hitchner believes there are currently five major types of DLOM analyses:

  1. IPO studies;
  2. Restricted stock studies;
  3. Bajaj-type analysis;
  4. Option pricing; and
  5. QMDM (Quantitative Marketability Discount Model).

“A Mandelbaum type analysis could be a sixth method, but I think it really pulls things together after the application of other models,” he adds. “The IPO studies can be broader benchmark analyses or detailed using the Brian Pearson database Valuation Advisors’ Lack of Marketability Discount Study™. The restricted stock studies can also be broader benchmark analyses or more detailed using The FMV Restricted Stock Study™. Option models have been used for years,” Hitchner continues, “but Longstaff's version is gaining recognition. QMDM is a separate method. In terms of LEAPS, they are gaining in visibility. At this year’s DLOM Summit, we are including a category called ‘other,’ and we may decide to cover LEAPS and also the NICE model.”  

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