How Valuable are the TALF Puts?
Posted: 11 Aug 2009
Date Written: August 11, 2009
Under the TALF program, an investor has the ability to borrow via term loans against eligible TALF assets as collateral. Due to the non-recourse feature of these loans, the borrower in effect possesses a put option for each individual asset in the portfolio, with the maximum amount at risk to the borrower equal to the haircut. We estimate the value of the put under rough but reasonable assumptions, and also show that the portfolio of puts may be significantly more valuable than a hypothetical put on the whole portfolio.
Keywords: TALF, Put, Leverage, Federal Reserve, Liquidity Crisis
JEL Classification: G38
Suggested Citation: Suggested Citation