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Optimal execution of accelerated share repurchase contracts with fixed notional

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  • Olivier Guéant

    (ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

Whether it be to take advantage of stock undervaluation or in order to distribute part of their profits to shareholders, firms may buy back their own shares. One of the ways they do this is by including accelerated share repurchases as part of their repurchase programs. We study the pricing and optimal execution strategy of an accelerated share repurchase contract with a fixed notional. In such a contract the firm pays a fixed notional F to the bank and receives in exchange a number of shares corresponding to the ratio of F to the average stock price over the purchase period (the duration of this period being decided upon by the bank). From a mathematical point of view, the problem is related to both optimal execution and exotic option pricing.

Suggested Citation

  • Olivier Guéant, 2017. "Optimal execution of accelerated share repurchase contracts with fixed notional," Post-Print hal-02862765, HAL.
    • Handle: RePEc:hal:journl:hal-02862765
    DOI: 10.21314/JOR.2017.361
    as

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