Accelerated share repurchase and other buyback programs: what neural networks can bring

DOI10.1080/14697688.2020.1729397MaRDI QIDQ5139239zbMATH OpenOpenAlexFDO

Authors Olivier Guéant, Iuliia Manziuk, Jiang Pu

Publication date 7 December 2020

Published in Quantitative Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1907.09753

zbMATH Keywords

ASR contractsdeep learningoptimal stoppingrecurrent neural networksreinforcement learningstochastic optimal control

Mathematics Subject Classification ID

Stopping times; optimal stopping problems; gambling theory (60G40) Derivative securities (option pricing, hedging, etc.) (91G20) Optimal stochastic control (93E20)

Abstract: When firms want to buy back their own shares, they have a choice between several alternatives. If they often carry out open market repurchase, they also increasingly rely on banks through complex buyback contracts involving option components, e.g. accelerated share repurchase contracts, VWAP-minus profit-sharing contracts, etc. The entanglement between the execution problem and the option hedging problem makes the management of these contracts a difficult task that should not boil down to simple Greek-based risk hedging, contrary to what happens with classical books of options. In this paper, we propose a machine learning method to optimally manage several types of buyback contract. In particular, we recover strategies similar to those obtained in the literature with partial differential equation and recombinant tree methods and show that our new method, which does not suffer from the curse of dimensionality, enables to address types of contract that could not be addressed with grid or tree methods.

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Cites work

• Accelerated share repurchase: pricing and execution strategy
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• Deep learning
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Cited in

(5)

• Operational research and artificial intelligence methods in banking
• Optimal accelerated share repurchases
• Learning a functional control for high-frequency finance
• Accelerated share repurchase: pricing and execution strategy
• Accelerated Share Repurchases Under Stochastic Volatility

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