STOCK REPURCHASE POLICY WITH TRANSACTION COSTS UNDER JUMP RISKS

Hiromichi Goko, Masamitsu Ohnishi and Motoh Tsujimura
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Hiromichi Goko: Bank of Japan, 2-1-1 Nihonbashi-Hongokucho Chuo-ku, Tokyo, 103-8660, Japan
Masamitsu Ohnishi: Graduate School of Economics, Osaka University, 1-7 Machikaneyama Toyonaka, Osaka, 560-0043, Japan
Motoh Tsujimura: Faculty of Economics, Ryukoku University, 67 Fukakusa Tsukamoto-cho Fushimi-ku, Kyoto, 612-8577, Japan

Chapter 11 in Recent Advances in Stochastic Operations Research, 2007, pp 161-174 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractWe examine a stock repurchase policy with fixed and proportional transaction costs under jump risks. The firm's problem is to maximize the expected total discounted stock repurchases. To solve the problem, we formulate it as a stochastic impulse control problem, and then approach it using quasi-variational inequalities (QVI). Then, we prove that the value function is a solution to the QVI and that the QVI policy is optimal. Furthermore, we present the results of numerical examples and conduct comparative-static analysis. The amount of the ith stock repurchase is increasing in the fixed and proportional transaction costs. An increase in the fixed and proportional transaction costs lengthens the expected interval of stock repurchase time. Unfortunately, the effect of jump risk on the stock repurchase policy is ambiguous.

Keywords: Operations Research; Uncertainty; Applied Probability; Stochastic Process; Optimization; Decision Science (search for similar items in EconPapers)
Date: 2007
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