Pricing risky bank loans in the new Basel II environment

Iftekhar Hasan and Cristiano Zazzara

No 3/2006, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: Recently, banking literature has had a quest for appropriate pricing of bank loans under the new Basel II rules and has been in pursuit of possible outcomes for undertaking such credit risk.In this paper, we propose a simplified formula to price bank's corporate loans, aiming at making bank managers aware of the creation/destruction of shareholder value.We show that the mathematical treatability of the proposed formula and its easy feeding with internal and market inputs allow simple implementation by the final user.

Keywords: Basel II; rating; pricing; exposure at default; EVA (search for similar items in EconPapers)
JEL-codes: C63 G12 G21 G28 (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofrdp:rdp2006_003

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