Modeling loan commitments
Loan commitments represent more than 82 percent of all commercial and industrial loans by domestic banks. This paper develops a valuation model for loan commitments incorporating early exercise, multiple fees, partial exercise and credit risk. The model is analytically tractable and easy to implement. Using a sample of commercial paper backup credit lines from the Dealscan database, we show that our model prices closely match loan commitment market prices.
If 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.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Anjan V. Thakor, 2004.
"Toward a Theory of Bank Loan Commitments,"
- Duffie, Darrell & Lando, David, 2001. "Term Structures of Credit Spreads with Incomplete Accounting Information," Econometrica, Econometric Society, vol. 69(3), pages 633-64, May.
- Daves, Phillip R & Ehrhardt, Michael C, 1993. " Liquidity, Reconstitution, and the Value of U.S. Treasury Strips," Journal of Finance, American Finance Association, vol. 48(1), pages 315-29, March.
- Gary Gorton & Andrew Winton, 2002.
Center for Financial Institutions Working Papers
02-28, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Qiang Dai & Kenneth J. Singleton, 2000. "Specification Analysis of Affine Term Structure Models," Journal of Finance, American Finance Association, vol. 55(5), pages 1943-1978, October.
- Marc R. Saidenberg & Philip E. Strahan, 1999. "Are banks still important for financing large businesses?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 5(Jul).
- Ham, John C & Melnik, Arie, 1987. "Loan Demand: An Empirical Analysis Using Micro Data," The Review of Economics and Statistics, MIT Press, vol. 69(4), pages 704-09, November.
- Chateau, John-Peter D., 1990. "Valuation of 'capped' variable rate loan commitments," Journal of Banking & Finance, Elsevier, vol. 14(4), pages 717-728, October.
- Merton, Robert C., 1973.
"On the pricing of corporate debt: the risk structure of interest rates,"
684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-70, May.
- Duffie, Darrell & Singleton, Kenneth J, 1999. "Modeling Term Structures of Defaultable Bonds," Review of Financial Studies, Society for Financial Studies, vol. 12(4), pages 687-720.
- Sudheer Chava & Michael R. Roberts, 2008. "How Does Financing Impact Investment? The Role of Debt Covenants," Journal of Finance, American Finance Association, vol. 63(5), pages 2085-2121, October.
- Duffie, Darrell & Singleton, Kenneth J, 1997. " An Econometric Model of the Term Structure of Interest-Rate Swap Yields," Journal of Finance, American Finance Association, vol. 52(4), pages 1287-1321, September.
- Elena Loukoianova & Salih N. Neftci & Sunil Sharma, 2006. "Pricing and Hedging of Contingent Credit Lines," IMF Working Papers 06/13, International Monetary Fund.
- Jarrow, Robert A & Lando, David & Turnbull, Stuart M, 1997. "A Markov Model for the Term Structure of Credit Risk Spreads," Review of Financial Studies, Society for Financial Studies, vol. 10(2), pages 481-523.
- Duffee, Gregory R, 1999.
"Estimating the Price of Default Risk,"
Review of Financial Studies,
Society for Financial Studies, vol. 12(1), pages 197-226.
- Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
- Ho, Thomas S. Y. & Saunders, Anthony, 1983. "Fixed Rate Loan Commitments, Take-Down Risk, and the Dynamics of Hedging with Futures," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 18(04), pages 499-516, December.
- Hawkins, Gregory D., 1982. "An analysis of revolving credit agreements," Journal of Financial Economics, Elsevier, vol. 10(1), pages 59-81, March.
- Umut Cetin & Robert Jarrow & Philip Protter & Yildiray Yildirim, 2004.
"Modeling Credit Risk with Partial Information,"
- Jarrow, Robert A & Turnbull, Stuart M, 1995. " Pricing Derivatives on Financial Securities Subject to Credit Risk," Journal of Finance, American Finance Association, vol. 50(1), pages 53-85, March.
- Jordan, Bradford D. & Jorgensen, Randy D. & Kuipers, David R., 2000. "The relative pricing of U.S. Treasury STRIPS: empirical evidence," Journal of Financial Economics, Elsevier, vol. 56(1), pages 89-123, April.
When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:5:y:2008:i:1:p:11-20. See general 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: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.