Valuation of Stock Options of Non‐Publicly Traded Companies

Abstract

Recent developments in accounting for stock options have increased interest in the analytical techniques used to value them. Techniques used to value the options of publicly traded companies have been extensively discussed. In contrast, there has been almost no discussion of the valuation procedures of the options for non‐publicly traded companies. This paper addresses this gap. The paper suggests that a straightforward income capitalization model can be used to develop reasonable surrogates for the variables of the Black‐Scholes option pricing model. The paper also discusses how to adjust the income apitalization model for both lack of marketability and lack of control discounts.

Citation

Cron, W.R. and Hayes, R.B. (2007), "Valuation of Stock Options of Non‐Publicly Traded Companies", American Journal of Business, Vol. 22 No. 1, pp. 11-20. https://doi.org/10.1108/19355181200700001