Adjustments due to the Increase in the Borrowing cost

derivababy · April 27th, 2005, 11:42 am

hi,suppose a trader is long a Fwd, but is borrowing the shares.If there is a sudden increase in the cost of borrowing the shares (let's say an increase in 10%) how should we adjust the Fwd Price to maintain the initial fairness of the trade? (not benefit anyone on the agreed terms) ?thks

aconze · April 28th, 2005, 6:44 am

make the counterparty pay for the PV difference pre and post borrowing cost increase.

derivababy · April 28th, 2005, 8:23 am

could you put a simple exampble