Dealer Funding Costs: Implications for the Term Structure of Dividend Risk Premia
Posted: 16 Feb 2016 Last revised: 29 Oct 2017
Date Written: February 13, 2016
Abstract
I show how funding costs to derivatives dealers' shareholders for carrying and hedging inventory affect mid-market derivatives prices. An implication is that some supposed "no-arbitrage" pricing relationships, such as put-call parity, frequently break down. I also explore the implications for measuring the term structure of S&P 500 dividend risk premia.
Keywords: Financial Intermediation, funding costs, term structure of dividend risk premia
JEL Classification: G12, G13, E44
Suggested Citation: Suggested Citation
Song, Yang, Dealer Funding Costs: Implications for the Term Structure of Dividend Risk Premia (February 13, 2016). Available at SSRN: https://ssrn.com/abstract=2732133 or http://dx.doi.org/10.2139/ssrn.2732133
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