Embedded options in commercial banking and their impact on asset liability management

J. F. Boulier and P. Schoeffler

Applied Stochastic Models and Data Analysis, 1992, vol. 8, issue 3, 137-150

Abstract: Commercial bankers sell—more often give away—options to their clients like the prepayment facility attached to a mortgage or the right to obtain a credit at a prespecified interest rate which is associated in France with specific term deposits. This paper aims to present the financial consequences of these options from a microeconomic point of view and on the scale of the French banking system. We first example our valuation techniques and then analyse the impact on the balance sheet of a typical commercial bank, both in terms of value and sensitivity. Securitization is presented in this context as a way to monitor risk exposure. Finally the global impact of these embedded options in the French banking system is estimated and briefly discussed.

Date: 1992
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https://doi.org/10.1002/asm.3150080304

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Persistent link: https://EconPapers.repec.org/RePEc:wly:apsmda:v:8:y:1992:i:3:p:137-150

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