ACCELERATED SHARE REPURCHASE: PRICING AND EXECUTION STRATEGY

Olivier Guéant, Jiang Pu () and Guillaume Royer ()
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Jiang Pu: Institut Europlace de Finance, Research Initiative "Exécution optimale et statistiques, de la liquidité haute fréquence", France
Guillaume Royer: CMAP, Ecole Polytechnique, Paris, France

International Journal of Theoretical and Applied Finance (IJTAF), 2015, vol. 18, issue 03, 1-31

Abstract: In this paper, we consider the optimal execution problem associated to accelerated share repurchase (ASR) 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.

Keywords: Optimal execution; ASR contracts; optimal stopping; stochastic optimal control; utility indifference pricing (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (10)

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Working Paper: Accelerated Share Repurchase: pricing and execution strategy (2015)
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DOI: 10.1142/S0219024915500193

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