Wong, Tat Wing. / Thesis (M.Phil.)--Chinese University of Hong Kong, 2011. / Includes bibliographical references (p. 53-55). / Abstracts in English and Chinese. / Chapter 1 --- Introduction --- p.1 / Chapter 2 --- Problem Formulation --- p.5 / Chapter 2.1 --- Phase-type distribution --- p.5 / Chapter 2.1.1 --- A generalization of the exponential distribution --- p.5 / Chapter 2.1.2 --- Properties of the phase-type distribution --- p.6 / Chapter 2.2 --- Phase-type jump diffusion model --- p.8 / Chapter 2.2.1 --- Jump diffusion model --- p.8 / Chapter 2.2.2 --- The stock price model --- p.9 / Chapter 2.3 --- Stock Loans --- p.10 / Chapter 3 --- General Properties of Stock Loans --- p.12 / Chapter 3.1 --- Preliminary results --- p.12 / Chapter 3.2 --- Characterization of the function V(x) --- p.15 / Chapter 4 --- Valuation / Chapter 4.1 --- Hyperexponential jumps --- p.25 / Chapter 4.1.1 --- Solution of the linear system --- p.29 / Chapter 4.1.2 --- Solution of the optimal exercise boundary --- p.30 / Chapter 4.2 --- Phase-type jumps --- p.33 / Chapter 4.3 --- The case for G'(1)≥ 0 --- p.36 / Chapter 5 --- Future Research Direction --- p.38 / Chapter 5.1 --- The fast mean-reverting stochastic volatility model --- p.38 / Chapter 5.2 --- Asymptotic expansion of stock loan --- p.39 / Chapter 5.2.1 --- The zeroth order term --- p.41 / Chapter 5.2.2 --- The first order term --- p.43 / Chapter 6 --- Conclusion --- p.52 / Bibliography --- p.53

<p>Stock lending is primarily a professional activity. The supply of stocks in the lending market comes mainly from pension funds and insurance companies, while intermediaries provide valuable services by taking positions as borrowers as well as lenders. Borrowers use stock lending for various reasons. For instance, hedge funds usually borrow stocks to cover a short position. There has been a lot of controversy in the stock lending industry and the debate has mainly concerned its effects for the stock markets. The objective of this thesis is to describe the Swedish stock lending market by analyzing the historical development from 1995 to 2006. Securities lending has increased enormously in recent years and our aim is to explore what has contributed to this positive development by describing the different perspectives in the stock lending market – lender, borrower, intermediary and the Swedish Securities Dealers Association. Our conclusion is that the number of stocks on loan per week is showing a 977 percent growth between 1995 and 2006. The correlation between the number of shares on loan and its market value is highly positive during the period of study, except for 2002. The stock lending market is a legitimate investment activity which plays an important role in supporting efficient markets. According to our data stock lending supports hedging activities, accelerates price corrections in overvalued stocks and facilitates liquidity in capital markets.</p>

Stock lending is primarily a professional activity. The supply of stocks in the lending market comes mainly from pension funds and insurance companies, while intermediaries provide valuable services by taking positions as borrowers as well as lenders. Borrowers use stock lending for various reasons. For instance, hedge funds usually borrow stocks to cover a short position. There has been a lot of controversy in the stock lending industry and the debate has mainly concerned its effects for the stock markets. The objective of this thesis is to describe the Swedish stock lending market by analyzing the historical development from 1995 to 2006. Securities lending has increased enormously in recent years and our aim is to explore what has contributed to this positive development by describing the different perspectives in the stock lending market – lender, borrower, intermediary and the Swedish Securities Dealers Association. Our conclusion is that the number of stocks on loan per week is showing a 977 percent growth between 1995 and 2006. The correlation between the number of shares on loan and its market value is highly positive during the period of study, except for 2002. The stock lending market is a legitimate investment activity which plays an important role in supporting efficient markets. According to our data stock lending supports hedging activities, accelerates price corrections in overvalued stocks and facilitates liquidity in capital markets.

Submitted by Lira Rocha da Mota (lrmota@fgvmail.br) on 2014-04-11T16:09:48Z No. of bitstreams: 1 dissertacao.pdf: 1327836 bytes, checksum: d45aace450f509fb8a98c97ff86e3225 (MD5) / Approved for entry into archive by ÁUREA CORRÊA DA FONSECA CORRÊA DA FONSECA (aurea.fonseca@fgv.br) on 2014-04-25T19:49:33Z (GMT) No. of bitstreams: 1 dissertacao.pdf: 1327836 bytes, checksum: d45aace450f509fb8a98c97ff86e3225 (MD5) / Approved for entry into archive by Marcia Bacha (marcia.bacha@fgv.br) on 2014-05-08T13:41:20Z (GMT) No. of bitstreams: 1 dissertacao.pdf: 1327836 bytes, checksum: d45aace450f509fb8a98c97ff86e3225 (MD5) / Made available in DSpace on 2014-05-08T13:41:34Z (GMT). No. of bitstreams: 1 dissertacao.pdf: 1327836 bytes, checksum: d45aace450f509fb8a98c97ff86e3225 (MD5) Previous issue date: 2013-12-23 / We report the results of an exploratory data analysis of the Brazilian securities lending market. The analysis is performed over the full historical data set of each individual loan offer and loan contract negotiated between January 2007 and August 2013. We give a quantitative description of volume and loan fee trends and fee dependence on asset characteristics. We also unveil new stylized facts specific to the Brazilian market on market access asymmetries between different types of investors. The emerging picture is that the Brazilian securities lending market is a complex environment with specific frictions and strong asymmetries among players. In particular, we describe a tax arbitrage operation performed by domestic mutual funds which generates a significant distortion in the data. In one such event, we estimate additional aggregate profits of 24.25 million Reais (around 10 million Dollars).

Securities Lending is a significant part of the financial industry. One important part of the securities lending business is how to match different lending and borrowing orders to maximize profits as a middle man. However, order matching is not always as straightforward as it may seem. It is a very simple problem until you introduce the fact that some lenders and borrowers have a minimum quantity of shares for a stock they want to trade. In this paper, we have created two main algorithms that solve this problem, and one combined algorithm that uses the strengths of both algorithms. The result is that it is possible to automate the order matching process with these algorithms. With real-world data from Nordea, there is no problem using a brute force approach to solve the problem optimally in almost all cases. In the few cases where the brute force approach is too slow, a greedy approach can be used to solve the problem very quickly, even if there is a lot of orders with a minimum quantity. The trade-off is that an average error of 0.02% from the optimal solution is introduced. However, this is small enough that for most real-world applications it is better to have a good solution fast than an optimal solution slow. / Värdepapperslån är en stor del av den finansiella industrin. En stor del av att driva en verksamhet med värdepapperslån är att matcha långivare med låntagare för att maximera bankens förtjänst. Det är ett väldigt enkelt problem att lösa så länge varken långivaren eller låntagaren har några krav på ett minsta antal aktier de måste handla med. För att lösa detta problemet utvecklades två olika algoritmer. Båda algoritmerna har sina styrkor och svagheter.  BruteMatching är en algoritm där alla kombinationer av ordrar testas för att sedan välja den kombination som gav det högsta värdet. Denna algorithm körs i O(2nmin x n log n) tid. Där n är antalet ordrar och nmin är antalet ordrar med ett minimum krav. GreedyMatching är en algoritm som löser problemet först utan att ta hänsyn till om ordrarna har ett minimumkrav eller ej. Sedan kollar algoritmen om lösningen uppfylde kravet eller inte. Om lösningen inte uppfyllde kravet körs algoritmen om. Dock tas den order som inte uppfyllde kraven bort från matchningen. Den körs även om med ett nytt vilkor, att det är okej att ta med ordrar som kan skapa negativt värde så länge ett minimumkrav ej är uppfyllt. Sedan återupprepas detta tills det finns en eller två godkända lösningar och därmed väljs den som skapar det största värdet för banken. Denna algorithm körs i O(n log n + n x nmin) tid. Huvudalgoritmen som nu kommer användas i Nordeas system är en kombination av denna, där GreedyMatching körs först och om det finns misstankar om att lösningen inte är optimal så körs BruteMatching också. Dock körs bara BruteMatching om antalet ordrar med minimum krav är lägre än 20 då fler än det gör att det tar för lång tid. En utökning för algoritmerna  är att istället för att endast maximera värdet av alla ordar, ser man om det finns ett värde av att vikta om ordrarnas avgifter. Detta kan vara fördelaktigt om någon order är från en viktig kund eller om man vet att en viss order kommer att gälla under en längre tid än någon annan order.

This dissertation uses a Sociological approach to analyse the risks associated with the practice of securities lending. Risks are those factors that inhibit the development of trust, and trust is essential for people to participate in financial transactions like securities lending. In this dissertation we show that, although there are a number of risks, individual and systemic, that are associated with securities lending, practitioners have, over time, developed an array of risk management procedures and practices to keep these risks at acceptable levels. Securities lending is however not practiced in a vacuum and the relevance of these risk management procedures is largely determined by the cultural environment in which it is practised. Values, norms and sanctions are crucial as social controls over behaviour that transpires in social structures. The presence of structural conditions necessary for the development of a culture of extreme opportunism is shown as arguably the greatest source of risk facing those who participate in financial transactions like securities lending. / Sociology / M.A.

This dissertation uses a Sociological approach to analyse the risks associated with the practice of securities lending. Risks are those factors that inhibit the development of trust, and trust is essential for people to participate in financial transactions like securities lending. In this dissertation we show that, although there are a number of risks, individual and systemic, that are associated with securities lending, practitioners have, over time, developed an array of risk management procedures and practices to keep these risks at acceptable levels. Securities lending is however not practiced in a vacuum and the relevance of these risk management procedures is largely determined by the cultural environment in which it is practised. Values, norms and sanctions are crucial as social controls over behaviour that transpires in social structures. The presence of structural conditions necessary for the development of a culture of extreme opportunism is shown as arguably the greatest source of risk facing those who participate in financial transactions like securities lending. / Sociology / M.A.

Der erste Artikel liefert Beweise dafür, dass ein Liquiditätsschock bei geschlossenen Fonds zu einer Liquiditätsverschlechterung bei offenen Fonds führen kann. Unsere Ergebnisse zeigen, dass Aktien von geschlossenen Fonds, die aufgrund eines Marktversagens notverkauft wurden, temporär im Preis sinken. Offene Fonds, die viele der betroffenen Aktien halten, erleiden daraufhin einen Kapitalabfluss, der weitere Notverkäufe bedingt. Dies unterstreicht die Ansteckungsgefahr zwischen den beiden Finanzmärkten. Der zweite Artikel untersucht, ob Fonds, die mit Staatsanleihen handeln, ihr Risiko durch den Wertpapierverleih erhöhen, indem sie die hierbei erhaltenen Sicherheiten risikoreich reinvestieren. Hiermit konsistent finden wir, dass die Returnvolatilität von Fonds ansteigt, je mehr Wertpapiere verliehen werden. Diese Korrelation ist nur evident, wenn der für den Wertpapierverleih verantwortliche Agent bereits in der Vergangenheit solch eine Strategie praktiziert hat. Sie verschwindet hingegen, wenn der Agent Sicherheiten nicht risikoreich reinvestieren kann. Im dritten Artikel stellen wir ein neues Maß vor, mit dem sich die Handelsaktivität von Fonds drei Tage vor den Geschäftsberichten untersuchen lässt. Stark handelnde Fonds halten bei Berichtsschluss mehr Gewinner- und weniger Verliereraktien. Zudem sind die üblichen Maße, die zur Identifizierung von Window Dressing verwendet werden, signifikant höher. Aktien, die in den letzten drei Tagen vor den Juli und Dezember Berichten einen starken Nachfrageüberschuss aufweisen, steigen in dieser Periode um durchschnittlich 20 Bsp. Dieser Anstieg ist nicht durch Informationstheorien erklärbar, da die Preise innerhalb von einer Woche auf ihr ursprüngliches Niveau zurückfallen. Aktien mit hoher Liquidität zeigen geringere Anstiege und kehren schneller zum Ausgangspreis zurück. Die Preisbewegungen lassen sich nicht durch einen einzelnen Faktor, wie Window Dressing oder Portfolio Pumping, erklären. / The first paper provides evidence that a liquidity shock to closed-end funds can transmit to open-end funds. Using the failure of the market for auction rate securities we show that forced asset sales of highly levered closed-end funds result in temporary price declines in those assets. Open-end funds that hold significant numbers of the affected stocks in turn experience outflows, forcing them to conduct additional fire-sales. These forced sales induce additional price pressure consistent with financial contagion. The second paper examines whether mutual bond funds increase their risk exposure through securities lending transactions by reinvesting the cash collateral of these transactions in risky assets. Consistent with such behavior, we find that the return volatility of government bond funds increases with the percentage of securities on loan. This relation is only evident among funds whose lending agent likely reinvests the lending collateral riskily and disappears if the lending program is managed by agents who typically cannot make risky reinvestments. The third paper provides a new way to measure the trading activity by mutual funds in the last three days of their reporting periods. Consistent with window dressing, heavy end-of-period (EoP) traders report more winner, fewer loser stocks and higher return and rank gaps, yet perform no better. Stocks with a high positive EoP trade imbalance show significant price increases of about 20 bps at the end of reporting periods in June and December. Inconsistent with information trading, prices revert within a week. Liquid stocks appreciate less strongly and revert more quickly. Finally, we show that window dressing, portfolio pumping, or fund flows alone are unlikely to explain our results.