Two resolutions of the margin loan pricing puzzle

Alexander Garivaltis ()

Research in Economics, 2019, vol. 73, issue 2, 199-207

Abstract: This paper supplies two possible resolutions of Fortune’s (2000) margin-loan pricing puzzle. Fortune (2000) noted that the margin loan interest rates charged by stock brokers are very high in relation to the actual (low) credit risk and the cost of funds. If we live in the Black–Scholes world, the brokers are presumably making arbitrage profits by shorting dynamically precise amounts of their clients’ portfolios.

Keywords: Margin loans; Arbitrage pricing; Super-hedging; Interest margin; Continuous-time Kelly rule (search for similar items in EconPapers)
JEL-codes: C44 D42 D43 D53 D81 E43 G11 G13 G24 (search for similar items in EconPapers)
Date: 2019
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Working Paper: Two Resolutions of the Margin Loan Pricing Puzzle (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reecon:v:73:y:2019:i:2:p:199-207

DOI: 10.1016/j.rie.2019.04.006

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