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Banks’ pooling of corporate debt: An application of the restated diversification theorem

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  • Lundtofte, Frederik

Abstract

We analyze banks’ pooling of corporate loans and propose Pareto-improving sharing rules that depend only on the relative sizes of the loans. Implementation of these sharing rules do not require any precise knowledge of default probabilities or default correlations.

Suggested Citation

  • Lundtofte, Frederik, 2015. "Banks’ pooling of corporate debt: An application of the restated diversification theorem," The North American Journal of Economics and Finance, Elsevier, vol. 31(C), pages 249-263.
    • Handle: RePEc:eee:ecofin:v:31:y:2015:i:c:p:249-263
    DOI: 10.1016/j.najef.2014.12.003
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    More about this item

    Keywords

    Risk pooling; Probability of default; Default correlation; Corporate debt;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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