Question

Assume that you open a 100 share short position in Jiffy, Inc. common stock at the bidask price of $32.00 – $32.50. When you close your position, 6 months later, the bid-ask prices are $32.50 – $33.00. The commission rate is 0.5% and the annual semiannually compounded risk-free rate is 8%.

Question:

Suppose that you had to post collateral equal to the sale proceeds with a haircut of 25%. The collateral earned interest (rebate rate) of 6%, annual and semiannually compounded. What is the additional gain or loss due to leasing the asset?

Answer 1

Sells 100 shares for $32 = $3200
Commission = $3200 x .005 = $16
Buys 100 shares for $33 = $3300
Commission = $3300 x .005 = $16.5
Profit = ($3200 - $3300) - $16 -$16.5 = - $132.5
Therefore there is a loss of $132.5 if we consider a plain simple vanilla case of shorting.

When there is a inclusion of collateral we have:

Now proceeds from short sale = $100*32*0.995 = $3184
Interest earned on the proceeds for the 6 months = $3184 x (1.04^(1/2)) - $3184 = $63.05

I can help with only this much. Don't know how the haircut will work.