Department of Finance
Date of this Version
1998
Document Type
Article
Citation
Journal of Actuarial Practice 6 (1998), pp. 63-112
Abstract
A cash flow model is developed to set the price for a loan to a borrower with known risks. Similarities are noted between this model and those used for profit testing in life insurance. We emphasize aspects that reasonably can be treated in several ways and also indicate where the cash flow model differs from the pricing methods usually employed in bank lending. The sensitivity of interest rates to various parameters of the model such as the length of loan and the expected default rate is examined. Also, we examine how features of loans, including cash back and early repayments, can be priced.
Included in
Accounting Commons, Business Administration, Management, and Operations Commons, Corporate Finance Commons, Finance and Financial Management Commons, Insurance Commons, Management Sciences and Quantitative Methods Commons
Comments
Copyright 1998 Absalom Press