A Model for Bank’s Optimal Asset Securitization Program
We propose a framework to examine banks’ asset securitization program. It provides a comprehensive view that explains various separate findings and claims in the literature. We derive optimal timing and quantity of banks’ asset securitization by explicitly incorporating stochastic asset returns and leverage constraints. We also quantify how much additional value can be created by asset securitization program, which gives some insights into why banks securitize assets. We further conduct some comparative analysis by varying the asset quality and economic environment, obtaining results that can account for the actual securitization trends including the bubble and crisis periods. Our empirical analysis using a Japanese data set also provide evidences that are consistent with our theoretical implications.
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