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Accelerated Share Repurchase: pricing and execution strategy

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  • Olivier Gu'eant
  • Jiang Pu
  • Guillaume Royer

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.

Suggested Citation

  • Olivier Gu'eant & Jiang Pu & Guillaume Royer, 2013. "Accelerated Share Repurchase: pricing and execution strategy," Papers 1312.5617, arXiv.org, revised Sep 2014.
    • Handle: RePEc:arx:papers:1312.5617
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    References listed on IDEAS

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    1. Charles-Albert Lehalle & Sophie Laruelle (ed.), 2013. "Market Microstructure in Practice," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 8967.
    2. Leland, Hayne E, 1985. "Option Pricing and Replication with Transactions Costs," Journal of Finance, American Finance Association, vol. 40(5), pages 1283-1301, December.
    3. Jakša Cvitanić & Ioannis Karatzas, 1996. "Hedging And Portfolio Optimization Under Transaction Costs: A Martingale Approach12," Mathematical Finance, Wiley Blackwell, vol. 6(2), pages 133-165, April.
    4. 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.
    5. 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.
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    Cited by:

    1. Olivier Gu'eant, 2014. "Optimal execution of ASR contracts with fixed notional," Papers 1410.1481, arXiv.org, revised May 2016.
    2. Barlow, Euan & Tezcaner Öztürk, Diclehan & Revie, Matthew & Akartunalı, Kerem & Day, Alexander H. & Boulougouris, Evangelos, 2018. "A mixed-method optimisation and simulation framework for supporting logistical decisions during offshore wind farm installations," European Journal of Operational Research, Elsevier, vol. 264(3), pages 894-906.

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