What is a Dollar Roll?
Dollar rolls are strategies that involve the repurchase of some type of mortgage-backed security. To a degree, a dollar roll is very similar to a repurchase agreement. The process involves the sale of a security to a buyer, with the agreement that the security will be repurchased at a specified time in the future. One slight variation on the dollar roll strategy involves purchasing a similar security from the buyer of the initial security rather than simply repurchasing the initial security. As part of the arrangement, the seller in a dollar roll strategy relinquishes any collection of any interest or payments on the principal that are transacted during the period between sale and repurchase. During this interim period, the current owner of the security receives the benefit of any revenue generated. This continues until the repurchase date, at which point the original owner reacquires the security for a slightly lower price that applied to the initial transaction. This lower price is u
