Non-agency mortgage-backed securities (MBS) are typically priced and traded on discounted cashflow basis where a cashflow projection is made under a prepayment and default scenario and discounted with a discount margin (DM) that supposedly measures credit risk. Whilest simple and intuitive to...

Derivative pricing is about cash flow discounting at the riskfree rate. This teaching has lost its meaning post the financial crisis, due to the addition of extra value adjustments (XVA), which also made derivatives pricing and valuation a very difficult task for investors. This article recovers...

When used as derivatives collateral, securities have to be exchanged for cash in the repo market. The repo market applies different haircuts from collateral agreements, creating a pocket of unsecured credit exposure and uncovered funding. Moreover, repo tenors are typically in months, so the...

Repo pricing is characterized with its puzzling dual pricing measures: repo haircut and repo spread. This article develops a repo haircut model by designing haircuts to achieve high credit criteria, and identifies economic capital for repo's default risk as the main driver of repo pricing. A...

A securities lending transaction is collateralized with cash in the amount of securities' market value plus a margin or haircut. Haircuts necessarily depend on the securities and the security borrowers. This article extends a repo haircut model to securities lending that captures asset...

Bilateral derivatives valuation is subject to counterparty credit risk (CCR) in that a counterparty could jump to default or its credit spread could vary over time. In the nomenclature of risk management, the former is called CCR exposure and the later leads to credit valuation adjustment (CVA)....

Total return swap (TRS) involves a pricing dilemma: Libor discounting of its premium leg forces upfront payment of future funding premium, and yet replacing Libor with a firm's own funding rate falls into the well-known FVA debate trap. We consider TRS hedge financing from a repo market...