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Variable Purchase Options

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Abstract

This paper examines the design and pricing of an innovative derivative asset known as a variable purchase option (“VPO“). A VPO is a call option issued by a corporation on a stochastic number of shares of its common stock. The key feature of the security is that it is ex-ante certain to be exercised by rational investors at maturity, at which time the corporation is certain to issue a fixed dollar amount of new equity capital. A VPO therefore provides a corporation with an alternative to underwriting as a means to guarantee the success of a future equity offering.

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Authors and Affiliations

  1. Centre of Financial Studies, University of Melbourne, VIC 3010, AUSTRALIA

    John C. Handley

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  1. John C. Handley
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Handley, J.C. Variable Purchase Options. Review of Derivatives Research 4, 219–230 (2000). https://doi.org/10.1023/A:1011331329906

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  • DOI: https://doi.org/10.1023/A:1011331329906

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