Toward a theory of bank loan commitments
AbstractThe characteristics of fixed and variable rate bank loan commitments are analyzed in a contingent-claims framework, and valuation expressions are derived for these commitments. The valuation expressions are used to present estimates of the impact of interest rate uncertainty on the liability assumed by a bank issuing loan commitments. Finally, a simple, two-period, asymmetric information model is employed to explain the recent trend among bankers to substitute variable rate commitments for their fixed rate counterparts.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Banking & Finance.
Volume (Year): 6 (1982)
Issue (Month): 1 (March)
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