Funding Adjustments in Equity Linear Products

Stefania Gabrielli, Andrea Pallavicini and Stefano Scoleri

Papers from arXiv.org

Abstract: Valuation adjustments are nowadays a common practice to include credit and liquidity effects in option pricing. Funding costs arising from collateral procedures, hedging strategies and taxes are added to option prices to take into account the production cost of financial contracts so that a profitability analysis can be reliably assessed. In particular, when dealing with linear products, we need a precise evaluation of such contributions since bid-ask spreads may be very tight. In this paper we start from a general pricing framework inclusive of valuation adjustments to derive simple evaluation formulae for the relevant case of total return equity swaps when stock lending and borrowing is adopted as hedging strategy.

Date: 2019-06
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://arxiv.org/pdf/1906.02561 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1906.02561

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().