Dealer Funding Costs: Implications for the Term Structure of Dividend Risk Premia

Posted: 16 Feb 2016 Last revised: 29 Oct 2017

See all articles by Yang Song

Yang Song

University of Washington - Michael G. Foster School of Business

Date Written: February 13, 2016

Abstract

I show how funding costs to derivatives dealers' shareholders for carrying and hedging inventory affect mid-market derivatives prices. An implication is that some supposed "no-arbitrage" pricing relationships, such as put-call parity, frequently break down. I also explore the implications for measuring the term structure of S&P 500 dividend risk premia.

Keywords: Financial Intermediation, funding costs, term structure of dividend risk premia

JEL Classification: G12, G13, E44

Suggested Citation

Song, Yang, Dealer Funding Costs: Implications for the Term Structure of Dividend Risk Premia (February 13, 2016). Available at SSRN: https://ssrn.com/abstract=2732133 or http://dx.doi.org/10.2139/ssrn.2732133

Yang Song (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

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