Re-hypotecation of securities
AbstractBy introducing repro markets we understand how agents need to borrow issued securities before shorting them : (re)-hypothecation is at the heart of shorting. Non-negative amounts of securities in the box of an agent (amounts borrowed or owned but not lent on) can be sold, and recursive use of securities as collateral allows agents to leverage their positions. A binding box constraint induces a liquidity premium : the repro rate becomes special, the security price higher than expected discounted cash-flows. Existence of equilibrium is granted under limited re-hypothecation, a situation secured by (current or proposed) institutional arrangements.
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Bibliographic InfoPaper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00476004.
Date of creation: Mar 2010
Date of revision:
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Re-hypothecation; repro; box; leverage; repo collateral multiplier; short sale; issuing; collateral; pledge; specialness; equilibrium security pricing.;
Other versions of this item:
- Jean-Marc Bottazzi & Jaime Luque & Mário Páscoa, 2010. "Re-hypothecation of securities," Documents de travail du Centre d'Economie de la Sorbonne, UniversitÃ© PanthÃ©on-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne 10025, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
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