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Valuation of Credit Risk in Agricultural Mortgages
Author(s) -
Sherrick Bruce J.,
Barry Peter J.,
Ellinger Paul N.
Publication year - 2000
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1111/0002-9092.00007
Subject(s) - underwriting , solvency , actuarial science , valuation (finance) , business , loan , credit risk , adverse selection , economics , finance , market liquidity
A credit‐risk valuation model is developed and empirically implemented to estimate the cost of insuring against credit risks in pools of agricultural mortgage loans. Probabilistic information about loss distributions across a broad set of loan‐level and pool‐level characteristics is used to assess insurance valuation and solvency likelihood. The effects on the value of credit‐risk insurance of pool size, deductibles, timing alterations, premium loadings, adverse loan selection, and changing underwriting standards are also estimated. Results indicate that actuarial insurance costs are initially highly sensitive and then become relatively insensitive as pool size increases.