Collateral Secured Loans with Uncertainty in a Monetary Economy
| Autor: | Yu-Chi Chu, 朱玉琦 |
|---|---|
| Rok vydání: | 2013 |
| Druh dokumentu: | 學位論文 ; thesis |
| Popis: | 101 In an environment where there is no technology to force debt repayment, borrowers are required to pledge some assets as collateral to secure loans. When asset returns are subject to uncertainty, borrowers may default when the loss of giving up collateral is less than that of debt repayment. This paper introduces the optimal contract problem into a monetary economy with collateral loans. Specifically, a contract maximizes the borrower''s expected utility by choosing a loan amount, a loan rate, a credit limit and an up-front fee, that satisfies the bank''s participation constraints. After deducting the fee from the loan amount, the remaining balance is the net loan amount that real assets finance from credit markets. The model delivers the following insights. We endogenize a credit limit that does not rely on the mechanism of voluntary repayment. A constrained borrower can lift his credit limit by paying a higher fee, and it is optimal for a constrained borrower to finance a risky loan. Therefore, we generate a monetary equilibrium with endogenous default probability. The liquidity of the real asset is derived from a trade-off between the loan amount and the collected fee. As the asset becomes riskier, borrowers default more likely, and banks charge a higher fee, which implies that it is more costly for borrowers to raise the credit limit. Consequently, a riskier asset is less liquid. |
| Databáze: | Networked Digital Library of Theses & Dissertations |
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