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Principles of Financial Engineering, 3rd Edition by Elsevier Science

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Chapter 5

Repo Market Strategies in Financial Engineering

In this chapter, we explain the role of repos and reverse repos. Different types of repos and their uses are discussed. The concepts of haircuts, manufactured dividends as well as special and general collateral are explained. Repo market conventions and terminology are explained. Examples of repo market strategies such as funding a bond position, futures arbitrage, hedging a swap, and tax-related strategies are presented. We apply the concept of a synthetic applied to repos and it is shown that a repo can be related to the forward purchase of a bond and the cash purchase of a bond. Recent market developments related to equity repos and implied repo rates are discussed. Although our discussion ...

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