The objective is either to design an appropriate securities lending auction mechanism or to come up with a strategy for placing bids, depending on which side of the fence a participant sits. There are two pieces to this puzzle. One is the valuation of the portfolio being auctioned subject to the available information set. The other piece would be to come up with the best strategy from an auction perspective once a valuation has been obtained. We derive valuations under different assumptions and show a weighting scheme that converges to the true valuation. We extend auction theory results to be more applicable to financial securities and intermediaries. Lastly, we run simulations to establish numerical examples for the set of valuations and for various bidding strategies corresponding to the different auction settings.
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