Equity Forward Financing and Collateral Funding Rates

Summary

The document raises a practical financing question about equity forwards inferred from European call-put parity. It asks whether a forward on an easy-to-borrow European stock should be expected to accrue at Euribor or Eonia, and whether a trader can assume the stock hedge is financed at that rate when the stock is posted as collateral.

No answer, derivation, market evidence, or detailed assumptions are provided. The issue is framed as a question rather than a completed explanation, so it does not establish that either reference rate is appropriate. Resolving it would require specifying the collateral and financing terms, the relevant stock-borrow conditions, and how those terms enter the forward price. The material is useful as a prompt about the relationship between put-call parity, equity-forward pricing, and funding, but offers no conclusion to apply directly.

Key ideas

• The document asks how funding affects equity forwards implied by European option parity.
• It focuses on whether Euribor or Eonia is a reasonable financing benchmark for an easy-to-borrow stock.
• It raises the question of whether pledged stock collateral supports financing the hedge at that rate.
• It provides no answer or market evidence, so the pricing assumption remains unresolved.

Tags

# Financing of an equity forward


# Financing of an equity forward












How reasonable it is to assume that the forwards (implied through call-put parity from European options) on easy-to-borrow European stocks will "grow" at Euribor/Eonia rate? In other words, is it reasonable to assume that we can finance the stock hedge at Euribor/Eonia (given we leave the stock as collateral).

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.