Optimal redeeming strategy of stock loans with finite maturity

Min Dai, Zuoquan Xu

Research output: Journal article publicationJournal articleAcademic researchpeer-review

18 Citations (Scopus)

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.
Original languageEnglish
Pages (from-to)775-793
Number of pages19
JournalMathematical Finance
Volume21
Issue number4
DOIs
Publication statusPublished - 1 Oct 2011
Externally publishedYes

Keywords

  • Finite maturity
  • Optimal stopping
  • Optimal strategy
  • Stock loans

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Social Sciences (miscellaneous)
  • Economics and Econometrics
  • Applied Mathematics

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