How Valuable are the TALF Puts?

Posted: 11 Aug 2009

Date Written: August 11, 2009

Abstract

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

Bhansali, Vineer, How Valuable are the TALF Puts? (August 11, 2009). Available at SSRN: https://ssrn.com/abstract=1447430

Vineer Bhansali (Contact Author)

LongTail Alpha, LLC ( email )

500 Newport Center Drive
Suite 820
Newport Beach, CA 92660
United States

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