Accelerated Share Repurchase: pricing and execution strategy

2013/12/19 by Olivier Guéant, Guéant, Olivier, Jiang Pu +4 · 3 citations
Economics, Econometrics and Finance · #Capital Investment and Risk Analysis #Economic theories and models #Stochastic processes and financial applications #q-fin.PR #q-fin.TR

paper · pdf · doi:10.48550/arxiv.1312.5617

arxiv created 2014/09/24 · arxiv updated 2014/09/25

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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