Callable Stock Loans

Siu, C; Yam, SCP; Zhou, W

Callable Stock Loans

Siu, C Yam, SCP Zhou, W

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Publisher:: World Scientific Publishing
Publication Type:: Chapter
Citation:: Recent Advances in Financial Engineering, 2016, pp. 161 - 197
Issue Date:: 2016-01-01

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Field	Value	Language
dc.contributor.author	Siu, C	en_US
dc.contributor.author	Yam, SCP	en_US
dc.contributor.author	Zhou, W	en_US
dc.contributor.editor	Kijima, M	en_US
dc.contributor.editor	Muromachi, Y	en_US
dc.contributor.editor	Shibata, T	en_US
dc.date.issued	2016-01-01	en_US
dc.identifier.citation	Recent Advances in Financial Engineering, 2016, pp. 161 - 197	en_US
dc.identifier.isbn	978-981-4730-76-1	en_US
dc.identifier.uri	http://hdl.handle.net/10453/43808
dc.description.abstract	In a non-recourse collateralized loan agreement, the lender’s recovery is only limited to the market value of the asset as a collateral. In practice, a loan lender can protect himself against any loss by introducing either a margin requirement or a callable feature in the loan contract. In this respect, it is natural to ask: (1) which one of the two mentioned features should be more preferable to the loan manager; (2) how the borrower reacts towards either one of these two features. In the present work, we address these issues by solving explicitly the respective valuation problems of collateralized lending with margin requirement and callable feature under the Black-Scholes model. For the callable feature, we also provide systematic discussions on (1) how to identify whether the smooth-fit condition holds or fails at the optimal stopping boundaries of the associated Dynkin game, and (2) how to solve it when the smooth-fit condition fails at one or both boundaries. We finally utilize these explicit solutions to conduct detailed comparative analysis.	en_US
dc.publisher	World Scientific Publishing	en_US
dc.relation.ispartof	Recent Advances in Financial Engineering	en_US
dc.title	Callable Stock Loans	en_US
dc.type	Chapter
utslib.location	Singapore	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
utslib.for	150204 Insurance Studies	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
utslib.copyright.status	closed_access
pubs.consider-herdc	true	en_US
pubs.place-of-publication	Singapore	en_US
pubs.publication-status	Published	en_US

Abstract:

In a non-recourse collateralized loan agreement, the lender’s recovery is only limited to the market value of the asset as a collateral. In practice, a loan lender can protect himself against any loss by introducing either a margin requirement or a callable feature in the loan contract. In this respect, it is natural to ask: (1) which one of the two mentioned features should be more preferable to the loan manager; (2) how the borrower reacts towards either one of these two features. In the present work, we address these issues by solving explicitly the respective valuation problems of collateralized lending with margin requirement and callable feature under the Black-Scholes model. For the callable feature, we also provide systematic discussions on (1) how to identify whether the smooth-fit condition holds or fails at the optimal stopping boundaries of the associated Dynkin game, and (2) how to solve it when the smooth-fit condition fails at one or both boundaries. We finally utilize these explicit solutions to conduct detailed comparative analysis.

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/43808