An Introduction to Repo Markets - Choudhry, Moorad (KBC Financial Products

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Auteur(s) : Choudhry, Moorad (KBC Financial Products

Editeur : John Wiley & Sons

Langue : Anglais

Parution : 31/03/2006

Format : Moyen, de 350g à 1kg

Nombre de pages : 224.0

Expédition : 14

ISBN : 0470017562

Résumé :
The Repo markets have grown dramatically in the past few years because of the need to hedge short positions in the capital and derivatives markets. Virtually all major currency markets in the world now have an established repo market, the facility is also increasingly being used in developing currency markets as well.

This book is a practical introduction that focuses on the instruments, applications and risk management techniques essential for this rapidly evolving market. Fully updated to reflect the changes in these markets, the book also includes worked examples and case studies, and new sections on basket and structured finance repo.

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Biographie:
Dr Moorad Choudhry is Head of Treasury at KBC Financial Products in London. He is a Visiting Professor at the Department of Economics, London Metropolitan University, a Visiting Research Fellow at the ICMA Centre, University of Reading, a Senior Fellow at the Centre for Mathematical Trading and Finance, Cass Business School, and a Fellow of the Securities and Investment Institute....

Sommaire:

Foreword xv

Preface xvii

Preface to First Edition xix

About the author xxi

1 Introduction to Repo 1

Importance of repo 3

Market participants 4

The repo instrument 5

Characteristics of repo 5

Classic repo 6

Summary 11

The sell/buy-back 11

Stock lending 13

Other repo products 14

Tri-party repo 15

Hold in custody repo 16

Safe-keeping repo 17

Borrow/Loan versus cash 17

Bonds borrowed/collateral pledged 17

Cross-currency repo 18

Exotic repo structures 19

Selected references 20

2 Market Background 21

Discounting and present value 22

Compounding 22

Discounting 23

Compounding more than once a year 23

Internal rate of return 24

Money market instruments 24

Securities quoted on a yield basis 25

Securities quoted on a discount basis 26

Money market formulae 27

Overview of bond market instruments 29

Definition of a bond 30

Fair pricing of bonds and bond yield 31

The yield curve 33

Theories of the yield curve 34

Bond price/yield relationship 34

Accrued interest 35

Accrual conventions 35

Selected references 36

3 The Mechanics of Repo 37

Uses and economic functions 38

Funding positions 38

Covering short positions 39

Yield enhancement 41

Margin 41

Initial margin 41

Variation margin 43

Other repo mechanics 44

Repo dealing risks 45

Interdependent risks 45

Financial market risks 46

Dealing with risk 49

Selected reference 50

4 Basket Repo, Synthetic Repo and Structured Finance Repo 51

Basket repo 52

Illustration of basket repo trade: Malaysian Government securities 52

Illustration using structured finance securities 55

Synthetic repo via the total return swap 58

Structured funding vehicles: repo conduit 62

Securities repo conduit 62

Selected reference 66

5 The UK Gilt Repo Market 67

Introduction 68

Growth of market 69

Gilt repo and other sterling money markets 70

Impact on the gilt market 72

Market structure 73

Repo and stock lending 73

Market participants: market making in repo 73

Market participants: brokers 74

Market participants: end-users 74

Gilt repo and the yield curve 75

Impact of the yield curve 75

Hedging through repo 75

Patterns of trading 76

Maturities 76

Specials 76

Gilts settlement and CREST 78

CREST settlement 79

CREST reference prices 79

Delivery by value 80

Gilt repo code of best practice 80

Selected references 81

6 Overview of Repo Trading and The Futures Contract Implied Repo Rate 83

Trading approaches 84

Positive yield curve environment 84

Negative yield curve environment 85

Yield curve arbitrage 86

Other spread trades 87

Specials trading 88

Credit intermediation 90

Matched book trading 90

Hedging tools 91

Futures strip 92

Forward rate agreements 93

Interest-rate swaps 94

The implied repo rate and basis trading 95

Contract definition 95

Conversion factors 98

The cheapest-to-deliver bond 99

The implied repo rate 102

Hedging implications 106

Selected references 108

7 Repo and the Yield Curve 109

Zero-coupon rates 110

Discount factors and the discount function 110

Spot and forward rates: boot-strapping from the par yield curve 111

Spot...