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A Note on Hedging a Loan Portfolio

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Author Info
Udo Broll () (Dresden University of Technology, Department of Economics)
Peter Welzel () (University of Augsburg, Department of Economics)

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Abstract

In the framework of the industrial economics approach to banking we extend the analysis of hedging against default on loans to the case of two types of credit risk. Standard results on the optimal hedge volume and the hedging effectivity from the single-risk case are shown to carry over to the portfolio case in a non-trivial but intuitive way.

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File URL: http://www.wiwi.uni-augsburg.de/vwl/institut/paper/250.pdf
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Publisher Info
Paper provided by Universitaet Augsburg, Institute for Economics in its series Discussion Paper Series with number 250.

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Date of creation: Sep 2003
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Handle: RePEc:aug:augsbe:0250

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Related research
Keywords: banking; credit risk; loan portfolio; credit derivative; hedging effectivity;

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Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

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References listed on IDEAS
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  1. Udo Broll & Thilo Pausch & Peter Welzel, 2002. "Credit Risk and Credit Derivatives in Banking," Discussion Paper Series 228, Universitaet Augsburg, Institute for Economics. [Downloadable!]
  2. Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061937.
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