Stock loan

Monday, June 11, 2018 - 2:00pm - 2:30pm
David Prager (Anderson University)
Stock loans involve two parties: a borrower and a lender. The borrower owns one share of stock and obtains a loan from the lender using the share of stock as collateral. At maturity, the borrower must choose between 1) repaying the lender the principal plus interest to regain the stock and 2) defaulting on the loan and surrendering the stock. Most classical work on stock loan valuation used Brownian motion-based stock models, but recently Markov chain models have gained in popularity.
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