Optimal Redeeming Strategy of Stock Loans

Details Optimal Redeeming Strategy of Stock Loans Optimal Redeeming Strategy of Stock Loans

2009-06-03

arxiv.org/abs/0906.0702v1

Economy

Quantitative Finance

Pricing of Securities

17 pages, 4 figures

Scientific paper

10.1111/j.1467-9965.2010.00449.x

A stock loan is a loan, secured by a stock, which gives the borrower the right to redeem the stock at any time before or on the loan maturity. The way of dividends distribution has a significant effect on the pricing of the stock loan and the optimal redeeming strategy adopted by the borrower. We present the pricing models sub ject to various ways of dividend distribution. Since closed-form price formulas are generally not available, we provide a thorough analysis to examine the optimal redeeming strategy. Numerical results are presented as well.

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