Repo and Securities Lending

Adrian, Tobias; Begalle, Brian; Copeland, Adam; Martin, Antoine

doi:10.3386/w18549

Cited by 68 publications

(35 citation statements)

References 17 publications

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“…We do not distinguish between security lending and repo, but refer to all of them as repo transactions. We consider two types of repo transactions: security driven and cash driven (see also Adrian, Begalle, Copeland, & Martin, ). The security‐driven transaction is used to overcome the prohibition on “naked” short sales of stocks, that is, the prohibition to the trader of selling a stock that he does not hold and hence cannot deliver.…”

Section: The Modelmentioning

confidence: 99%

Arbitrage‐free XVA

Bichuch

Capponi

Sturm

2017

Mathematical Finance

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We develop a framework for computing the total valuation adjustment (XVA) of a European claim accounting for funding costs, counterparty credit risk, and collateralization. Based on no‐arbitrage arguments, we derive backward stochastic differential equations associated with the replicating portfolios of long and short positions in the claim. This leads to the definition of buyer's and seller's XVA, which in turn identify a no‐arbitrage interval. In the case that borrowing and lending rates coincide, we provide a fully explicit expression for the unique XVA, expressed as a percentage of the price of the traded claim, and for the corresponding replication strategies. In the general case of asymmetric funding, repo, and collateral rates, we study the semilinear partial differential equations characterizing buyer's and seller's XVA and show the existence of a unique classical solution to it. To illustrate our results, we conduct a numerical study demonstrating how funding costs, repo rates, and counterparty risk contribute to determine the total valuation adjustment.

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Section: The Modelmentioning

confidence: 99%

Arbitrage‐free XVA

Bichuch

Capponi

Sturm

2017

Mathematical Finance

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“…Pozsar et al (2010) and Krishnamurthy et al (2014) show the MMFs and securities lenders provide more than half of the shortterm funding in both the bilateral and tri-party repo markets. Adrian et al (2013) explain the MMFs provides between a quarter and third funding in the tri-party repo market. Since MMFs are the main class of cash lender in the repo market and the data for all cash parties in the repo is limited, we focused on the MMFs funding in the tri-party repo market.…”

Section: The Repo Marketmentioning

confidence: 99%

The dynamic relationship among the money market mutual funds, the commercial paper market, and the repo market

Rizi

Kishor

Marfatia

2018

The European Journal of Finance

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In this paper, we investigate the short-run and the long-run relationship among the financial assets of the money market funds, the commercial paper, and the repurchase agreement markets by undertaking a cointegration analysis of quarterly data over the 1985-2017 period. The evidence suggests that there exists a common long-term cointegrating trend among these three components of the shadow banking system. Any disequilibrium in this long-run relationship among these variables is corrected by movement in the financial assets of the money market funds. The Beveridge-Nelson decomposition from the estimated cointegrating relationship shows that the cyclical component in the money market funds is large and captures the huge swings in these markets during the financial crisis. Our results confirm the narrative evidence presented in Krishnamurthy et al. (2014), who argue that the short-term debt market investment opportunities in the form of the commercial paper and the repo market played a crucial role in the expansion of the balance sheet of the money market funds. JEL Classifications: E44, G01, G10, G21, C32.

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“…We do not distinguish between security lending and repo, but refer to all of them as repo transactions. We consider two types of repo transactions: security driven and cash driven, see also Adrian et al (2013). The security driven transaction is used to overcome the prohibition on "naked" short sales of stocks, that is the prohibition to the trader of selling a stock which he does not hold and hence cannot deliver.…”

Section: Universal Instrumentsmentioning

confidence: 99%

Arbitrage-Free Pricing of XVA -- Part I: Framework and Explicit Examples

2015

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We develop a framework for computing the total valuation adjustment (XVA) of a European claim accounting for funding costs, counterparty credit risk, and collateralization. Based on noarbitrage arguments, we derive nonlinear backward stochastic differential equations (BSDEs) associated with the replicating portfolios of long and short positions in the claim. This leads to the definition of buyer's and seller's XVA, which in turn identify a no-arbitrage interval. In the case that borrowing and lending rates coincide, we provide a fully explicit expression for the uniquely determined XVA, expressed as a percentage of the price of the traded claim, and for the corresponding replication strategies. This extends the result of Piterbarg (2010) by incorporating the effect of premature contract termination due to default risk of the trader and of his counterparty.

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Repo and Securities Lending

Cited by 68 publications

References 17 publications

Arbitrage‐free XVA

Arbitrage‐free XVA

The dynamic relationship among the money market mutual funds, the commercial paper market, and the repo market

Arbitrage-Free Pricing of XVA -- Part I: Framework and Explicit Examples

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