Before revision:  It corroborates well with empirically stylized facts, explains tri-party and bilateral repo haircut differences, recasts haircut increases during the financial crisis , and sets a limit on access liquidity dealers can extract while acting as funding intermediaries between money market funds and hedge funds . Once a haircut is set, repo's residual risk becomes a pricing challenge, as is neither hedgeable nor diversifiable. We propose a capital pricing approach of computing repo economic capital and charging the borrower a cost of capital. Capital charge is shown to be countercyclical and a key element of repo pricing and used in explaining the repo pricing puzzle and maturity compression phenomenon .
After revision:  It corroborates well with empirically stylized facts, explains tri-party and bilateral repo haircut differences, recasts haircut increases during the financial crisis , and sets a limit on access liquidity dealers can extract while acting as funding intermediaries between money market funds and hedge funds .