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The Analysis of Loan Guarantees with Contingent Liability: A Barrier Option Approach
Journal of Financial Studies
View Archive Info| Field | Value | |
| Title |
The Analysis of Loan Guarantees with Contingent Liability: A Barrier Option Approach
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| Creator |
Chuang-Chang Chang
Ruey-Jenn Ho Tzu-Hsiang Liao Yaw-Huei Wang |
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| Description |
The loan guarantee models existed in the literature are all analyzed for guaranteed firms only with certain liability. However, the guaranteed firms have more or less contingent liability in the real world. It is not appropriate and incorrect to use the models without considering the contingent liability of guaranteed firms to value loan guarantee values. In this paper, we contribute to the literature in two ways. First we take the contingent liability of guaranteed firms into consideration when we construct a model to analyze the values of loan guarantees. Second we also use a barrier option structure to consider the default risk of guaranteed firms. The main findings from our simulation results are (i) the default occurred before the expiration date of loan guaranteed contract would significantly affect the values of loan guarantee contracts; (ii) The pricing biases for loan guarantee contract would be substantial when we ignore the contingent liability of guaranteed firms. Key Words: Contingent liability, Loan guarantee, Default risks |
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| Publisher |
Journal of Financial Studies
財務金èžå¸åˆŠ |
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| Date |
2011-03-10
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| Type |
—
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| Format |
application/pdf
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| Identifier |
http://www.jfs.org.tw/index.php/jfs/article/view/2011068
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| Source |
Journal of Financial Studies; Vol 17, No 3 (2009); 73
財務金èžå¸åˆŠ; Vol 17, No 3 (2009); 73 |
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| Language |
—
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