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The Optimal Contract of OSRS Margin Tradings on R.O.C. Government Bonds
Journal of Financial Studies
View Archive Info| Field | Value | |
| Title |
The Optimal Contract of OSRS Margin Tradings on R.O.C. Government Bonds
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| Creator |
Shyan Yuan Lee
Yehning Chen |
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| Description |
This paper studies margin tradings of ROC government bonds, and focuses on the OSRS-type margin trading. We find that this kind of tradings involve an adverse selection problem, thereby leading to credit rationing. We point out that, even if the investor (bo rrower) and the security firm (lender) have symmetric information about the government bond (investment project), credit rationing may still emerge if the firm does not know perfectly the investorfs repayment ability. We derive the optimal contract for the security firm, and find that the optimal contract has the following two characteristics: (1) the security firm sets the margin requirement as high as possible, (2) the optimal contract is a pooling contract. We also provide a necessary and sufficient condition for when the security firm lowers the interest rate to attract investors with higher repayment ability to participate the trade. Key words: Margin Tradings, Information Asymmetry, Adverse Selection, Credit Rationing, Outright Sale and Reverse Repo Contract. |
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| Publisher |
Journal of Financial Studies
財務金èžå¸åˆŠ |
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| Date |
2011-09-12
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| Type |
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| Format |
application/pdf
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| Identifier |
http://www.jfs.org.tw/index.php/jfs/article/view/2011268
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| Source |
Journal of Financial Studies; Vol 5, No 2 (1997); 1
財務金èžå¸åˆŠ; Vol 5, No 2 (1997); 1 |
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| Language |
—
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