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Variable Purchase Options

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  • John Handley

Abstract

This paper examines the design and pricing of an innovative derivative asset known as a variable purchase option (“VPO“). A VPO is a call option issued by a corporation on a stochastic number of shares of its common stock. The key feature of the security is that it is ex-ante certain to be exercised by rational investors at maturity, at which time the corporation is certain to issue a fixed dollar amount of new equity capital. A VPO therefore provides a corporation with an alternative to underwriting as a means to guarantee the success of a future equity offering. Copyright Kluwer Academic Publishers 2000

Suggested Citation

  • John Handley, 2000. "Variable Purchase Options," Review of Derivatives Research, Springer, vol. 4(3), pages 219-230, October.
    • Handle: RePEc:kap:revdev:v:4:y:2000:i:3:p:219-230
    DOI: 10.1023/A:1011331329906
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    References listed on IDEAS

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    1. Peter Tufano, 1995. "Securities Innovations: A Historical And Functional Perspective," Journal of Applied Corporate Finance, Morgan Stanley, vol. 7(4), pages 90-104, January.
    2. Turnbull, Stuart M. & Wakeman, Lee Macdonald, 1991. "A Quick Algorithm for Pricing European Average Options," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(3), pages 377-389, September.
    3. Cox, John C. & Ross, Stephen A., 1976. "The valuation of options for alternative stochastic processes," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 145-166.
    4. Robert C. Merton, 1992. "Financial Innovation And Economic Performance," Journal of Applied Corporate Finance, Morgan Stanley, vol. 4(4), pages 12-22, January.
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    Cited by:

    1. Manuel Moreno & Javier F. Navas, 2003. "Australian Asian Options," Working Papers 28, Barcelona School of Economics.
    2. Manuel Moreno & Javier F. Navas, 2008. "Australian Options," Australian Journal of Management, Australian School of Business, vol. 33(1), pages 69-93, June.
    3. Ewald, Christian-Oliver & Menkens, Olaf & Hung Marten Ting, Sai, 2013. "Asian and Australian options: A common perspective," Journal of Economic Dynamics and Control, Elsevier, vol. 37(5), pages 1001-1018.

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