Dispensing with optimal control: a new approach for the pricing and management of share buyback contracts
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arXiv
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| Auteurs principaux: | , , |
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| Format: | Preprint |
| Publié: |
2024
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| _version_ | 1866929417999089664 |
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| author | Baldacci, Bastien Bergault, Philippe Guéant, Olivier |
| author_facet | Baldacci, Bastien Bergault, Philippe Guéant, Olivier |
| contents | This paper introduces a novel methodology for the pricing and management of share buyback contracts, overcoming the limitations of traditional optimal control methods, which frequently encounter difficulties with high-dimensional state spaces and the intricacies of selecting appropriate risk penalty or risk aversion parameter. Our methodology applies optimized heuristic strategies to maximize the contract's value. The computation of this value utilizes classical methods typically used for pricing path-dependent options. Additionally, our approach naturally leads to the formulation of a $Δ$-hedging strategy and disentangles therefore the repurchase strategy from the hedging of the payoff. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2404_13754 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | Dispensing with optimal control: a new approach for the pricing and management of share buyback contracts Baldacci, Bastien Bergault, Philippe Guéant, Olivier Pricing of Securities Risk Management This paper introduces a novel methodology for the pricing and management of share buyback contracts, overcoming the limitations of traditional optimal control methods, which frequently encounter difficulties with high-dimensional state spaces and the intricacies of selecting appropriate risk penalty or risk aversion parameter. Our methodology applies optimized heuristic strategies to maximize the contract's value. The computation of this value utilizes classical methods typically used for pricing path-dependent options. Additionally, our approach naturally leads to the formulation of a $Δ$-hedging strategy and disentangles therefore the repurchase strategy from the hedging of the payoff. |
| title | Dispensing with optimal control: a new approach for the pricing and management of share buyback contracts |
| topic | Pricing of Securities Risk Management |
| url | https://arxiv.org/abs/2404.13754 |