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From the point of view of the borrower, the haircut is added to the amount you have to borrow, as I did. Though, properly, it's not 1+x but 1/(1-x) as Jake pointed out.

From the point of view of the lender, obviously, the haircut is a discount on the value of the collateral.

I want to borrow 100, I need to pledge 105 worth of assets.

I am receiving an asset worth 100 as collateral, I will offer a loan of 95.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Wed May 11th, 2011 at 09:48:56 AM EST
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