Option pricing models help experts calculate DLOMs

Description

Abstract: The valuation of noncontrolling interests in a business can come up in many legal contexts. A critical step is determining an appropriate discount for lack of marketability (DLOM). One way to make that determination is to use option pricing models, which base the discount on the cost of an option to sell shares in the subject business. This article discusses three models experts frequently use: Chaffe, Longstaff and Finnerty.