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O Spread de Incumprimento dos Emprestimos Bancarios

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  • Paulo Horta

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Abstract

In this paper we propose a discrete time model to measure the default spread for Bank loans. The model provides a closed-form solution for the short and medium term default spread, which we assume to be dependent on the default probabilities, the losses given default, the risk grades transition probabilities, seen in a Markov chain, the prime rate and the economic cycle phases. The model is tested with real data provided by a Bank, and allows one to conclude that the actual spread is, on the one hand, insufficient to cover the whole credit risk for low-risk clients and, on the other hand, excessive for high-risk clients. We believe that this study may contribute to improve the pricing for Bank loans.

Suggested Citation

  • Paulo Horta, 2008. "O Spread de Incumprimento dos Emprestimos Bancarios," CEFAGE-UE Working Papers 2008_02, University of Evora, CEFAGE-UE (Portugal).
  • Handle: RePEc:cfe:wpcefa:2008_02
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    Keywords

    Bank loans; default spread; credit risk; probability of default; loss given default; prime rate; risk grade transition; Markov chain; economic cycle;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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