2019/05/08 by Paul McCloud, McCloud, Paul
Decision Sciences · Economics, Econometrics and Finance · #Capital Investment and Risk Analysis #FOS: Economics and business #Mathematical Finance (q-fin.MF) #Pricing of Securities (q-fin.PR) #Risk and Portfolio Optimization #Stochastic processes and financial applications #q-fin.MF #q-fin.PR
paper · pdf · doi:10.48550/arxiv.1905.03316
arxiv created 2019/05/08 · openalex publication_date 2019/05/08 · arxiv updated 2019/05/10 · openalex created_date 2024/04/11 · openalex updated_date 2026/07/28
There is an observed basis between repo discounting, implied from market repo rates, and bond discounting, stripped from the market prices of the underlying bonds. Here, this basis is explained as a convexity effect arising from the decorrelation between the discount rates for derivatives and bonds. Using a Hull-White model for the discount basis, expressions are derived that can be used to interpolate the repo rates of bonds with different maturities and to extrapolate the repo curve for discounting bond-collateralised derivatives.