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An overview of project finance binomial loan valuation

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  • Winsen, Joseph K.

Abstract

Setting project financing parameters, such as the loan to valuation ratio, loan interest rate, repayment schedules, and fees, requires detailed modelling of the resulting credit risk in a non-recourse setting. Structured credit risk models, based on the early work of Merton, have been developed in continuous time which can assist with project financing structuring. These models require a level of mathematical sophistication that may not always be available to those undertaking project financing analysis. This note provides an overview of a discrete time binomial approach to structural credit risk modelling, which enables project financing analysts a more accessible tool to evaluate project loan structures.

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  • Winsen, Joseph K., 2010. "An overview of project finance binomial loan valuation," Review of Financial Economics, Elsevier, vol. 19(2), pages 84-89, April.
    • Handle: RePEc:eee:revfin:v:19:y:2010:i:2:p:84-89
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    Cited by:

    1. Megginson, William L., 2010. "Introduction to the special issue on project finance," Review of Financial Economics, Elsevier, vol. 19(2), pages 47-48, April.
    2. William L. Megginson, 2010. "Introduction to the special issue on project finance," Review of Financial Economics, John Wiley & Sons, vol. 19(2), pages 47-48, April.

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