Article1989

Assessing Credit Risk in a Financial Institution's Off-Balance Sheet Commitments

44 citations0/0 files storedJournal of Financial and Quantitative Analysis

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Credit Risk and Financial Regulations Banking stability, regulation, efficiency Stochastic processes and financial applications

Abstract

The first part of this paper presents a general approach to valuing a financial institution's contracts when there is credit risk. The approach uses contingent claims pricing theory and is particularly appropriate for an off-balance sheet contract, such as a swap, that can have either a positive or a negative value to the counterparty. The second part of the paper extends the analysis by considering the problem, faced by bank supervisory authorities, of determining capital requirements for off-balance sheet contracts.

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References

1979Option pricing: A simplified approach 1976The valuation of options for alternative stochastic processes 1985An Intertemporal General Equilibrium Model of Asset Prices 1990Options, Futures, and Other Derivative Securities.1983Foreign currency option values 1988Risk in Banking and Capital Regulation 1987The Pricing of Options with Default Risk 1983The pricing of call and put options on foreign exchange

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2000Structural effects of asset-backed securitization 1997Swap credit risk: An empirical investigation on transaction data 1996The valuation and behavior of black-scholes options subject to intertemporal default risk 2012What Drives Interest Rate Spreads in Uganda’s Banking Sector?

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