Before revision:  The liability-side posting collateralmust weigh in haircuts stipulated in collateral agreements against those prevalent in the repo market and find the cheapest funded securities to post. The haircut difference is synthesized in the pricing PDE's discount rateand the impact of repo financing cost is captured by collateral liquidity value adjustment (LVA) . Because a derivatives netting set's time horizon is much longer than repo tenors, a break-even repo formulae is employed to forecast the repo curve beyond three month tenor.
After revision:  The liability-side posting collateralmust weigh in haircuts stipulated in collateral agreements against those prevalent in the repo market , for derivatives netting sets are perpetual while repo tenors are typically in months. This article synthesizes these effects into a derivative financing rate that replaces the risk-free discount rate. A break-even repo formulae is employed to supply non-observable collateral rates, enabling collateral liquidity value adjustment (LVA) . Because a derivatives netting set's time horizon is much longer than repo tenors, a break-even repo formulae is employed to forecast the repo curve beyond three month tenor.