Almost half (48%) of respondents to a recent survey say they use option pricing models to estimate a discount for lack of marketability (DLOM), and the Finnerty model is the one most cited, according to BVR’s DLOM survey. Over half (57%) of those who use option methods use John Finnerty’s option model, with the David Chaffe and Francis Longstaff methods almost tied for second place (27% and 25%, respectively). Ten percent of survey respondents use the models from analyst Stillian Ghaidarov. A few respondents noted that they use Black-Scholes, but studies have shown that actual market behavior is different than what Black-Scholes theory suggests. The survey allowed for multiple choices, which accounts for the total being over 100%. Top valuation experts never rely entirely on one option model.

BVR’s survey on DLOM methodology and practice garnered over 200 responses. The full results are available as a free download if you click here.

Extra: Ghaidarov has a new framework for DLOM and he is looking for feedback on it—see details in the July 2021 issue of Business Valuation Update.