The Valuation of Loan with Corporate Exposure under New Basel Capital Accord

Autor: Chia-Tien Chang, 張加添
Rok vydání: 2005
Druh dokumentu: 學位論文 ; thesis
Popis: 93
The IRB approach explicitly classify financial exposures into six types, In this paper, we focus on corporate exposures and intend to value the corporate loans in continuous time framework under the IRB approach. Different exposures will result in difference in loan pricing. We extend the framework Merton (1974) combined with the theory of portfolio to characterize the dynamics of the value for loan portfolio of the bank. By taking the risk components inherent in the loan to obligors into account, the effects of asset return correlation and granularity are examined. The main results are as follows: First, the capital charge considered in terms of VaR in the risk management is linked to the dynamics of the value of loan portfolio; Second, both the VaR and the value of loan portfolio move in tandem over time, which contrast to the single time period setting in literature; Third, the value of bank’s loan portfolio depends on the instantaneous correlation coefficient between the instantaneous rate of return on the loans; Fourth, the instantaneous idiosyncratic risk of the loan portfolio would wane if the number of loans N in the portfolio increases; Fifth, when the average instantaneous coefficient of correlation decreases, the instantaneous systematic risk of the loan portfolio and the extent to which the value of the loan portfolio impacted by the business cycle would become less; Sixth, granularity, when the level of concentration increases to a higher than some critical level, the variance of the value of loan portfolio would increase with it. This would incur additional charged capital for the bank; Seventh, the impact of risk components on the yield to maturity of loans will ultimately determine the risk of the whole loan portfolio, and hence the capital charged.
Databáze: Networked Digital Library of Theses & Dissertations
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