The arbitrage-free valuation and hedging of demand deposits and credit card loans
Article Abstract:
The arbitrage-free methodology was utilized to handle demand deposit liabilities and credit card loan balances. The methodology, which can be utilized to quantify and to limit the interest rate risk exposure of a bank, showed that demand deposit liabilities and credit card loans are parallel with particular type of interest rate swap in which the principal relies on the previous history of market rates. The methodology can be utilized, together with credit risk analysis, in assessing the sufficiency of a bank's capital reserves by a bank or its regulators.
Publication Name: Journal of Banking & Finance
Subject: Business
ISSN: 0378-4266
Year: 1998
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Sovereign debt and the London Club: a precommitment device for limiting punishment for default
Article Abstract:
Financial institutions, such as the London Club, may be adopted by banks as a tool to write contracts wherein sovereign debt is treated as forgiven ex post. It was also shown that centralized forums for foreign debt negotiations may actually enhance the efficiency of banking institutions to manage rescheduling activities and overcome precommitment problems. The model also highlights the notion that banks will be able to establish more credible precommitments by forming loan syndicates, rather than resorting to independent lending.
Publication Name: Journal of Banking & Finance
Subject: Business
ISSN: 0378-4266
Year: 1997
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