Skip navigation
Please use this identifier to cite or link to this item:
Title: Pricing Accelerated Share Repurchases with Lookback Options
Authors: Orbe, Easton
Advisors: Dvir, Zeev
Sircar, Ronnie
Department: Mathematics
Certificate Program: Applications of Computing Program
Class Year: 2018
Abstract: Due in part to the current United States tax structure and surrounding market sentiment, share repurchases–the act of a company using its excess capital to repurchase some of its own shares from the market–have become incredibly popular of late. Since the financial crisis of 2008, almost $4, 000, 000, 000, 000 has been spent by U.S. companies on share repurchases. [7] While the rationale behind choosing to spend excess capital on a share repurchase varies for each company, many reacquire these shares through an Accelerated Share Repurchase (ASR) contract. For these share repurchases, which last anywhere from weeks to months, an investment bank, with more knowledge of the surrounding market conditions and often proprietary repurchase strategies–developed to minimize both the effect on stock price of purchasing a large number of shares and the inherent risk associated with the stock price changing through time–will repurchase the shares on behalf of the company. In this paper, I examine the literature and the mathematical theory behind these Accelerated Share Repurchases and the resulting optimal trading strategies. This investigation takes us first through the problem of optimal execution, where we seek to minimize the cost of selling or purchasing a large number of shares over a short period of time. We then adapt what we learned from the optimal execution problem to the problem of ASRs specifically. Though optimal execution problems have been exhaustively examined, the mathematical theory behind ASRs is fairly recent; most of the literature appears after 2014. I then expand the current literature on ASRs by adding the ability to price an ASR contract with a lookback option. Over the course of this paper, we will work our way up through an optimal execution model to an ASR specific model. I then modify these theories to allow for the inclusion of a lookback option on top of the ASR contract and test the execution of these new contracts on simulated stock market data.
Access Restrictions: Walk-in Access. This thesis can only be viewed on computer terminals at the Mudd Manuscript Library.
Type of Material: Princeton University Senior Theses
Language: en
Appears in Collections:Mathematics, 1934-2020

Files in This Item:
File Description SizeFormat 
ORBE-EASTON-THESIS.pdf845.74 kBAdobe PDF    Request a copy

Items in Dataspace are protected by copyright, with all rights reserved, unless otherwise indicated.