Assessing the risk-return trade-off in loan portfolios

Javier Mencia ()

Journal of Banking & Finance, 2012, vol. 36, issue 6, 1665-1677

Abstract: This paper proposes a methodology to analyse the risk and return of large loan portfolios in a joint setting. I propose a tractable model to obtain the distribution of loan returns from observed interest rates and default frequencies. I follow a sectoral approach that captures the heterogeneous cyclical features of different kinds of loans and yields moments in closed form. I investigate the validity of mean–variance analysis with a value at risk constraint and study its relationship with utility maximisation. Finally, I study the efficiency of corporate and household loan portfolios in an empirical application to the Spanish banking system.

Keywords: Credit risk; Multivariate distribution; Probability of default; Asset pricing; Risk aversion (search for similar items in EconPapers)
JEL-codes: C32 D81 G11 G12 G21 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426612000222
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Assessing the risk-return trade-off in loans portfolios (2009)
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:eee:jbfina:v:36:y:2012:i:6:p:1665-1677

DOI: 10.1016/j.jbankfin.2012.01.007

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().