An overview of project finance binomial loan valuation

Joseph K. Winsen

Review of Financial Economics, 2010, vol. 19, issue 2, 84-89

Abstract: Setting project financing parameters, such as the loan to valuation ratio, loan interest rate, repayment schedules, and fees, requires detailed modelling of the resulting credit risk in a non-recourse setting. Structured credit risk models, based on the early work of Merton, have been developed in continuous time which can assist with project financing structuring. These models require a level of mathematical sophistication that may not always be available to those undertaking project financing analysis. This note provides an overview of a discrete time binomial approach to structural credit risk modelling, which enables project financing analysts a more accessible tool to evaluate project loan structures.

Keywords: Project; financing; Binomial; valuation (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (2)

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