Application of BSDE in Standard Inventory Financing Loan

Hui Zhang, Wenyu Meng, Xiaojie Wang and Jianwei Zhang

Discrete Dynamics in Nature and Society, 2017, vol. 2017, 1-6

Abstract:

This paper examines the issue of loans obtained by the small and medium-sized enterprises (SMEs) from banks through the mortgage inventory of goods. And the loan-to-value (LTV) ratio which affects the loan business is a very critical factor. In this paper, we provide a general framework to determine a bank’s optimal loan-to-value (LTV) ratio when we consider the collateral value in the financial market with Knightian uncertainty. We assume that the short-term prices of the collateral follow a geometric Brownian motion. We use a set of equivalent martingale measures to build the models about a bank’s maximum and minimum levels of risk tolerance in an environment with Knightian uncertainty. The models about the LTV ratios are established with the bank’s maximum and minimum risk preferences. Applying backward stochastic differential equations (BSDEs), we get the explicit solutions of the models. Applying the explicit solutions, we can obtain an interval solution for the optimal LTV ratio. Our numerical analysis shows that the LTV ratio in the Knightian uncertainty-neutral environment belongs to the interval solutions derived from the models.

Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://downloads.hindawi.com/journals/DDNS/2017/1031247.pdf (application/pdf)
http://downloads.hindawi.com/journals/DDNS/2017/1031247.xml (text/xml)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hin:jnddns:1031247

DOI: 10.1155/2017/1031247

Access Statistics for this article

More articles in Discrete Dynamics in Nature and Society from Hindawi
Bibliographic data for series maintained by Mohamed Abdelhakeem ().