A General Option Valuation Approach to Discount for Lack of Marketability
32 Pages Posted: 15 Jan 2014 Last revised: 8 Nov 2014
Date Written: November 7, 2014
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 the Chaffe model, the Longstaff model, and the Finnerty model as special cases. The model also contains two weighting variables that provide valuation professionals much needed flexibility in addressing the unique challenges of each non-marketable valuation assignment. Selected prior empirical results are reinterpreted with this approach.
Keywords: Discount for lack of marketability, derivatives, put options, lookback options
JEL Classification: C65, G12, G13
Suggested Citation: Suggested Citation