Repurchasing shares synthetically using the total return swap-Swap agreements combined with a redemption program

Abstract

As the direct stock buyback was legalized in year 2000, it boosted the interest for a Swedish variant invented by Handelsbanken Markets, the synthetic share repurchase, which constitutes the foundation of this report. This descriptive study examines the synthetic repurchase program and evaluates the problem; if whether or not the synthetic buyback approach is the optimal course of action for a firm repurchasing stock. Further, the risks associated with, as well as the differences between the two repurchasing approaches (direct and synthetic) are studied and discussed, resulting in conclusive recommendations regarding the problem stated above.