Estimation of Portfolio's Expected Loss for Trading Strategies Based on Repurchase and Reverse Repurchase Agreements

Student: Ivakhnenko Anastasiya

Educational Programme: Financial Markets and Financial Institutions (Master)

Year of Graduation: 2020

This Master Thesis considers strategies for portfolio construction based on a variety of Repurchase and Reverse Repurchase Agreements. Three types of strategies are determined: the pyramid of Repos, the pyramid of Reverse Repos and the pyramid of alternating Repos and Reverse Repos. The purpose of the work is to estimate the expected loss of portfolios for the three strategy options in the case of the worst stress scenario and to compare these losses for portfolios of different sizes and chosen strategies. It is shown in the work that the REPO pyramid mechanism is capable of significantly increasing the potential losses of an investor even if securities of high credit quality are taken as collateral.

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