Pricing and Hedging of Contingent Credit Lines

Author/Editor:

Elena Loukoianova ; Salih N. Neftci ; Sunil Sharma

Publication Date:

January 1, 2006

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Contingent credit lines (CCLs) are widely used in bank lending and also play an important role in the functioning of short-term capital markets. Yet, their pricing and hedging has not received much attention in the finance literature. Using a financial engineering approach, the paper analyzes the structure of simple CCLs, examines methods for their pricing, and discusses the problems faced in hedging CCL portfolios.

Series:

Working Paper No. 2006/013

Subject:

Banking Credit Credit risk Financial institutions Financial regulation and supervision Lines of credit Loans Money Options

English

Publication Date:

January 1, 2006

ISBN/ISSN:

9781451862737/1018-5941

Stock No:

WPIEA2006013

Pages:

26

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