## Pricing and Hedging of Contingent Credit Lines

_IMF Working Papers, January 1, 2006_

## Source details

**Canonical URL:** [Pricing and Hedging of Contingent Credit Lines](https://www.imf.org/en/publications/wp/issues/2016/12/31/pricing-and-hedging-of-contingent-credit-lines-18727)

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## Bibliographic details
- Authors: Elena Loukoianova, Salih N. Neftci, Sunil Sharma
- Published: January 1, 2006
- Series: IMF Working Papers

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### Overview
- Contingent credit lines (CCLs) are widely used in bank lending and play an important role in the functioning of short-term capital markets.
- The paper notes that pricing and hedging of CCLs 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,
  - discusses the problems faced in hedging CCL portfolios.

### Main findings
- CCLs are important instruments in bank lending and short-term capital markets.
- There is a relative paucity of literature focused on pricing and hedging CCLs.
- A financial engineering framework can be used to dissect CCL structure and pricing, and to identify hedging difficulties.

### Methods and pricing approaches
- The paper applies a financial engineering approach to:
  - analyze the structure of simple CCLs,
  - examine methods for pricing CCLs.

### Hedging challenges
- The paper discusses the problems faced in hedging CCL portfolios, emphasizing practical difficulties in implementing hedges for contingent obligations.

### Subjects and keywords
- Subject: Banking, Credit, Credit risk, Financial institutions, Financial regulation and supervision, Lines of credit, Loans, Money, Options
- Keywords: CCL characteristic, CCL contract, CCL facility, CCL price, CCL structure, companies credit-worthiness, Contingent credit line (CCL), CP market, Credit, credit risk, financial condition, forward rate, hedging, Lines of credit, Loans, Options, pricing, WP

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/pricing-and-hedging-of-contingent-credit-lines-18727_