Sec-lending haircuts and indemnification pricing

A pricing method for borrowed securities that includes haircut and indemnification is introduced


In securities lending transactions, higher haircuts should lead to a lower cost of indemnification. Wujiang Lou presents a method for integrating haircut determination and indemnification pricing

An arbitrager or hedger wishing to take a short position in a security needs to borrow that security in order to sell it in the market. Market makers, no longer paid to carry deep inventories nowadays, borrow securities as well, even if customer flows are merely lightly

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