Accelerated Share Repurchase: pricing and execution strategy

Olivier Guéant, Jiang Pu and Royer Guillaume
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Royer Guillaume: CMAP - Centre de Mathématiques Appliquées de l'Ecole polytechnique - Inria - Institut National de Recherche en Informatique et en Automatique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique

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Abstract: In this article, we consider a specific 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.

Date: 2015
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Citations: View citations in EconPapers (8)

Published in International Journal of Theoretical and Applied Finance, 2015, 18 (3), ⟨10.1142/S0219024915500193⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01393126

DOI: 10.1142/S0219024915500193

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