Accelerated Share Repurchase: pricing and execution strategy
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.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jaksa Cvitanić & Ioannis Karatzas, 1996. "HEDGING AND PORTFOLIO OPTIMIZATION UNDER TRANSACTION COSTS: A MARTINGALE APPROACH-super-2," Mathematical Finance, Wiley Blackwell, vol. 6(2), pages 133-165.
- Leland, Hayne E, 1985.
" Option Pricing and Replication with Transactions Costs,"
Journal of Finance,
American Finance Association, vol. 40(5), pages 1283-1301, December.
- Hayne E. Leland., 1984. "Option Pricing and Replication with Transactions Costs," Research Program in Finance Working Papers 144, University of California at Berkeley.
- Alexander Schied & Torsten Schoneborn & Michael Tehranchi, 2010. "Optimal Basket Liquidation for CARA Investors is Deterministic," Applied Mathematical Finance, Taylor & Francis Journals, vol. 17(6), pages 471-489.
- Halil Mete Soner & Guy Barles, 1998. "Option pricing with transaction costs and a nonlinear Black-Scholes equation," Finance and Stochastics, Springer, vol. 2(4), pages 369-397.
When requesting a correction, please mention this item's handle: RePEc:arx:papers:1312.5617. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators)
If references are entirely missing, you can add them using this form.