Effects of maturity choices on loan-guarantee portfolios1
AbstractPurpose – The purpose of this paper is to analyse the effects of the maturities of credit-enhanced debt contracts on the value of an insurer's loan-guarantee portfolios. Design/methodology/approach – The paper proposes a contingent-claims model and uses as measure of credit insurance risk, the market value of the private guarantee, which accounts for projects' and guarantor's specific risks, correlations as well as financial leverage. Findings – The results indicate that in the case of insuring the debts of two parallel projects with different specific risks, one high-risk and the other low-risk, the tradeoff between maturities of the guarantees increases with the projects' expected losses, hence the maturity choice decision is crucial for portfolios subject to high expected losses. For a two sequential projects loan-guarantee portfolio, the paper finds that, regardless of the order of execution of the projects, it is the maturity of the debt supporting the high-risk project that drives the risk exposure of the portfolio. Practical implications – Since the management of portfolios of guarantees is of significant importance to many organizations both domestically and internationally, this paper proposes a simple and tractable model to gauge the impact of maturity choices for loan-guarantee portfolios. Originality/value – This is a first attempt at modeling multiple maturities in the context of portfolios of vulnerable loan guarantees.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Emerald Group Publishing in its journal Journal of Risk Finance.
Volume (Year): 7 (2006)
Issue (Month): 3 (May)
Contact details of provider:
Web page: http://www.emeraldinsight.com
Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Harris).
If references are entirely missing, you can add them using this form.