A General Option Valuation Approach to Discount for Lack of Marketability

32 Pages Posted: 15 Jan 2014 Last revised: 8 Nov 2014

See all articles by Robert Brooks

Robert Brooks

University of Alabama - Department of Economics, Finance and Legal Studies

Date Written: November 7, 2014

Abstract

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

Brooks, Robert E., A General Option Valuation Approach to Discount for Lack of Marketability (November 7, 2014). Available at SSRN: https://ssrn.com/abstract=2379007 or http://dx.doi.org/10.2139/ssrn.2379007

Robert E. Brooks (Contact Author)

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States
205-348-8987 (Phone)
205-348-0590 (Fax)

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