Accelerated share repurchase and other buyback programs: what neural networks can bring

Olivier Guéant, Iuliia Manziuk and Jiang Pu
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Iuliia Manziuk: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique
Jiang Pu: Institut europlace de finance

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: When firms want to buy back their own shares, they have a choice between several alternatives. If they often carry out open market repurchase, they also increasingly rely on banks through complex buyback contracts involving option components, e.g. accelerated share repurchase contracts, VWAP-minus profit-sharing contracts, etc. The entanglement between the execution problem and the option hedging problem makes the management of these contracts a difficult task that should not boil down to simple Greek-based risk hedging, contrary to what happens with classical books of options. In this paper, we propose a machine learning method to optimally manage several types of buyback contract. In particular, we recover strategies similar to those obtained in the literature with partial differential equation and recombinant tree methods and show that our new method, which does not suffer from the curse of dimensionality, enables to address types of contract that could not be addressed with grid or tree methods.

Keywords: ASR contracts; Optimal stopping; Stochastic optimal control; deep learning; Recurrent neural networks; Reinforcement learning (search for similar items in EconPapers)
Date: 2020-08-02
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Citations: View citations in EconPapers (4)

Published in Quantitative Finance, 2020, 20 (8), pp.1389-1404. ⟨10.1080/14697688.2020.1729397⟩

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Related works:
Working Paper: Accelerated Share Repurchase and other buyback programs: what neural networks can bring (2020)
Working Paper: Accelerated share repurchase and other buyback programs: what neural networks can bring (2020)
Working Paper: Accelerated Share Repurchase and other buyback programs: what neural networks can bring (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:hal-03252518

DOI: 10.1080/14697688.2020.1729397

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