Loan Pricing: Thinking Collateral

We introduce a framework for analyzing the interplay between credit risk and collateralmarket risk on loan pricing. To do this, we decompose any loan into an unsecured and asecured part. Further we explicitly consider the recovery process. The framework allows usto develop semi-analytical pricing formulae for loans where the borrower's creditworthinessand collateral value are correlated. We provide several applications to portfolio credit andcollateral risk management.[...]

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Year of publication:	2009-06-01
Authors:	Akgün, Aydin ; Vanini, Paolo
Institutions:	National Centre of Competence in ResearchFinancial Valuation and Risk Management
Subject:	Preisbildung \| pricing \| Risikomanagement \| risk management \| Kreditkosten

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1. Introduction
2. Base Model: Representing Loans as Securities
3. Extended Model: Collateral Correlated with Default Process
4. Calibration
5. Applications
5.1. Risk Management of a Complex Collateral Structure
5.2. Loan Portfolio Risk management
5.3. Applications of the Extended Model
6. Conclusion
7. Appendix
Literatur

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