Pricing and Hedging of Contingent Credit Lines

By Elena Loukoianova, Salih N. Neftci, Sunil Sharma

January 1, 2006

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Elena Loukoianova, Salih N. Neftci, and Sunil Sharma. Pricing and Hedging of Contingent Credit Lines, (USA: International Monetary Fund, 2006) accessed December 26, 2024

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.

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

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2006/013
Stock No:

WPIEA2006013
ISBN:

9781451862737
ISSN:

1018-5941

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