# Funding Adjustments in Equity Linear Products

**Authors:** Stefania Gabrielli, Andrea Pallavicini, Stefano Scoleri  
**arXiv:** [1906.02561](https://arxiv.org/abs/1906.02561)  
**Date:** 2019-06-06  
**Summary page:** https://www.summarizepaper.com/en/paper/1906.02561v1/

## Key points

- Authors Stefania Gabrielli, Andrea Pallavicini, and Stefano Scoleri emphasize the importance of incorporating credit and liquidity effects, funding costs, collateral procedures, hedging strategies, and taxes into option prices for accurate profitability assessment.
- They propose a general pricing framework that includes valuation adjustments and develop simple evaluation formulae for total return equity swaps.
- The authors focus on utilizing stock lending and borrowing as a hedging strategy in their case study.
- By considering funding adjustments in equity linear products, the authors aim to provide a comprehensive analysis that enhances understanding of complexities in option pricing and financial contract production costs.
- Their research contributes valuable insights to quantitative finance by offering practical solutions for assessing profitability and managing risks associated with financial instruments.

## Summary

In their paper titled "Funding Adjustments in Equity Linear Products," authors Stefania Gabrielli, Andrea Pallavicini, and Stefano Scoleri delve into the common practice of valuation adjustments in option pricing. They highlight the importance of incorporating credit and liquidity effects, as well as funding costs stemming from collateral procedures, hedging strategies, and taxes, into option prices to accurately assess the profitability of financial contracts. The authors propose a general pricing framework that includes valuation adjustments and proceed to develop simple evaluation formulae for total return equity swaps. In this specific case study, they focus on how stock lending and borrowing can be utilized as a hedging strategy. By considering these funding adjustments in equity linear products, the authors aim to provide a comprehensive analysis that enhances the understanding of the complexities involved in option pricing and financial contract production costs. Through their research, Gabrielli, Pallavicini, and Scoleri contribute valuable insights to the field of quantitative finance by offering practical solutions for assessing profitability and managing risks associated with such financial instruments.