Loan Guarantee Portfolios and Joint Loan Guarantees with Stochastic Interest Rates | Zendy

ChuangChang Chang | Zendy; SanLin Chung | Zendy

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Loan Guarantee Portfolios and Joint Loan Guarantees with Stochastic Interest Rates

Author(s) -

ChuangChang Chang,

SanLin Chung

Publication year - 2002

Publication title -

ssrn electronic journal

Language(s) - English

Resource type - Journals

ISSN - 1556-5068

DOI - 10.2139/ssrn.313959

Subject(s) - loan , interest rate , joint (building) , actuarial science , econometrics , business , economics , finance , engineering , architectural engineering

Most papers studying loan guarantee are under a one-borrower and one-guarantor framework. This study uses the option approach to construct models in which loan guarantees are analyzed under a multiple-borrower and one-guarantor framework and under a one-borrower and multiple-guarantor structure with stochastic interest rates. We carry out simulations to investigate how the important parameters of borrowers and guarantors affect the values and default probability of loan guarantees. Our results show that the correlation parameters play a critical role in determining the premiums of loan guarantee portfolios and joint loan guarantees.

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