August 2008
Beginner
852 pages
46h 4m
English
Content preview from Handbook of Finance: Financial Markets and InstrumentsBecome an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
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Chapter 72. Repurchase Agreements and Dollar Rolls
FRANK J. FABOZZI, PhD, CFA, CPA
Professor in the Practice of Finance, Yale School of Management
STEVEN V. MANN, PhD
Professor of Finance, Moore School of Business, University of South Carolina
Abstract: Access to short-term financing and the ability to borrow securities to cover short positions are essential elements to a liquid, well-functioning bond market. Repurchase and reverse repurchase agreements are mechanisms used by dealers to accomplish these needs. Repurchase agreements occupy a central position in the money market and provide a relatively safe investment opportunity for short-term investors. Structured repurchase agreements introduce variations on the basic agreement and are designed to accommodate specialized clienteles of users. Similarly, dollar rolls developed in the mortgage-backed securities market because of the need to borrow these more complicated securities to cover short positions.
Keywords: repurchase agreement, reverse repurchase agreement, repo rate, overnight repo, repo term, repo margin, collateral, delivered out, hold-in-custody (HIC) repo, triparty repo, general collateral, special collateral, buy/sell-back agreement, structured repurchase agreements, dollar roll, pass-through, TBA (to be announced), collateralized mortgage obligation (CMO), forward drop, prepayment speed
One of the largest segments of the money markets world-wide is the market in repurchase agreements or repos. A most efficient mechanism ...
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