Chapter 04

# 3255 06745 fval 2290 kay giesecke finance 20 cash

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Unformatted text preview: educe the cost by 91; surpluses are roughly zero x= -10.0000 -10.0000 31.2037 -10.0000 16.6390 -0.3438 -10.0000 16.3483 0.3255 -0.6745 fval = 2290 Kay Giesecke Finance 20 Cash matching Allow bounded short selling: comments • Implementation of a short sale is via a reverse repo and sale or securities lending • In practice, short selling is limited–hence the bound • Our formulation assumes that short selling is always possible without costs, which is not realistic (repo specials etc.) Kay Giesecke Finance Cash matching Reverse repo and sale Kay Giesecke 21 Finance 22 Cash matching An alternative • Surpluses could also be reinvested • We enlarge the universe of available securities by introducing one-period investments with cash streams of the form (0, . . . , 0, −1, 1 + s, 0, . . . , 0) where s is the appropriate one-period spot rate • We need estimates of future spot rates – Expectations dynamics: future spot rates are equal to current forward rates Kay Giesecke Finance 23 Cash matching Re-invest surpluses at the (implied) forward rates, assuming expectation dynamics: fval=2289 and roughly zero surpluses p = [109; 94.8; 99.5; 93.1; 97.2; 92.9; 110; C = [10 7 8 6 7 5 10 10 7 8 6 7 5 10 10 7 8 6 7 5 110 10 7 8 6 7 105 0 10 7 8 106 107 0 0 110 107 108 0 0 0 0 y = [100; 200; 800; 100; 800; 1200] lb = [0; 0; 0; 0; 0; 0; 0; 0; 0; 0; 0; 0; 0; [x,fval] = linprog(p,-C,-y,,,lb) Kay Giesecke 104; 8 8 108 0 0 0 102; 7 107 0 0 0 0 0; 0] 95.2; 100 0 0 0 0 0 0; -1 1.068 0 0 0 0 0; 0 -1 1.073 0 0 0 0; 0 0 -1 1.093 0 0 0; 0 0 0 -1 1.102 0 0]; 0; 0; 0; 0; -1; 1.101]...
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