Accelerated share repurchase: pricing and execution strategy

DOI10.1142/S0219024915500193MaRDI QIDQ5256838zbMATH OpenFDO

Authors Olivier Guéant, Jiang Pu, Guillaume Royer

Publication date 29 June 2015

Published in International Journal of Theoretical and Applied Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1312.5617

zbMATH Keywords

ASR contractsoptimal executionoptimal stoppingstochastic optimal controlutility indifference pricing

Mathematics Subject Classification ID

Stopping times; optimal stopping problems; gambling theory (60G40) Portfolio theory (91G10) Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60) Financial applications of other theories (91G80)

Abstract: In this article, we consider the optimal execution problem associated to accelerated share repurchase contracts. When firms want to repurchase their own shares, they often enter such a contract with a bank. The bank buys the shares for the firm and is paid the average market price over the execution period, the length of the period being decided upon by the bank during the buying process. Mathematically, the problem is new and related to both option pricing (Asian and Bermudan options) and optimal execution. We provide a model, along with associated numerical methods, to determine the optimal stopping time and the optimal buying strategy of the bank.

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Cited in

(8)

• Portfolio choice, portfolio liquidation, and portfolio transition under drift uncertainty
• Optimal accelerated share repurchases
• Optimal execution with limit and market orders
• Accelerated share repurchase and other buyback programs: what neural networks can bring
• Option pricing and hedging with execution costs and market impact
• Share Repurchases
• Accelerated Share Repurchases Under Stochastic Volatility
• Stock repurchase with an adaptive reservation price: a study of the greedy policy

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