Assessing Credit Risk in a Financial Institution's Off-Balance Sheet Commitments
The first part of this paper presents a general approach to valuing a financial institution's contracts when there is credit risk. The approach uses contingent claims pricing theory and is particularly appropriate for an off-balance sheet contract, such as a swap, that can have either a positive or a negative value to the counterparty. The second part of the paper extends the analysis by considering the problem, faced by bank supervisory authorities, of determining capital requirements for off-balance sheet contracts.
Volume (Year): 24 (1989)
Issue (Month): 04 (December)
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