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An overview of project finance binomial loan valuation

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  • Winsen, Joseph K.
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    Abstract

    Setting project financing parameters, such as the loan to valuation ratio, loan interest rate, repayment schedules, and fees, requires detailed modelling of the resulting credit risk in a non-recourse setting. Structured credit risk models, based on the early work of Merton, have been developed in continuous time which can assist with project financing structuring. These models require a level of mathematical sophistication that may not always be available to those undertaking project financing analysis. This note provides an overview of a discrete time binomial approach to structural credit risk modelling, which enables project financing analysts a more accessible tool to evaluate project loan structures.

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    File URL: http://www.sciencedirect.com/science/article/B6W61-4XHVH6V-1/2/eb3109d3e34e0338ff44a165f179bee1
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    Bibliographic Info

    Article provided by Elsevier in its journal Review of Financial Economics.

    Volume (Year): 19 (2010)
    Issue (Month): 2 (April)
    Pages: 84-89

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    Handle: RePEc:eee:revfin:v:19:y:2010:i:2:p:84-89

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    Web page: http://www.elsevier.com/locate/inca/620170

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    Keywords: Project financing Binomial valuation;

    References

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    Cited by:
    1. Megginson, William L., 2010. "Introduction to the special issue on project finance," Review of Financial Economics, Elsevier, vol. 19(2), pages 47-48, April.

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