Optimal Redeeming Strategy of Stock Loans with Finite Maturity

19 Pages Posted: 23 Aug 2011

See all articles by Min Dai

Min Dai

National University of Singapore (NUS) - Department of Mathematics

Zuo Quan Xu

Hong Kong Polytechnic University

Date Written: October 2011

Abstract

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 stock loans and the optimal redeeming strategy adopted by the borrower. We present the pricing models of the finite maturity stock loans subject to various ways of dividend distribution. Because 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.

Keywords: stock loans, finite maturity, optimal strategy, optimal stopping

Suggested Citation

Dai, Min and Xu, Zuo Quan, Optimal Redeeming Strategy of Stock Loans with Finite Maturity (October 2011). Mathematical Finance, Vol. 21, Issue 4, pp. 775-793, 2011. Available at SSRN: https://ssrn.com/abstract=1914920 or http://dx.doi.org/10.1111/j.1467-9965.2010.00449.x

Min Dai (Contact Author)

National University of Singapore (NUS) - Department of Mathematics ( email )

Singapore

Zuo Quan Xu

Hong Kong Polytechnic University ( email )

Hung Hom
Kowloon, 0
Hong Kong

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
2
Abstract Views
416
PlumX Metrics