Optimal Execution Strategies: The Special Case of Accelerated Share Repurchase (ASR) Contracts

31 October 2014
Dr. Olivier Guéant

When firms want to buy back their own shares, they often use the services of investment banks through ASR contracts. ASR contracts are execution contracts including exotic option characteristics (an Asian-type payoff and Bermudian/American exercise dates). In this talk, I will present the different types of ASR contracts usually encountered, and I will present a model in order to (i) price ASR contracts and (ii) find the optimal execution strategy for each type of contract. This model is inspired from the classical (Almgren-Chriss) literature on optimal execution and uses classical ideas from option pricing. It can also be used to price options on illiquid assets. Original numerical methods will be presented.