Risk sharing markets and hedging a loan portfolio: a note.

• Authors: Broll Udo , Guo Xu , Welzel Peter
• Languages of publication: EN

Abstracts

EN

Our study features a financial institute facing credit risk. Hedging credit risk by offsetting an open position with an opposite one in the financial market is important for financial intermediaries, which are concerned with both the profitability and risk of their operations. As risk management is crucial for the financial institute, the issues of how it is optimally determined and how it adjusts to changes in the financial environment deserve closer scrutiny. We extend the analysis of hedging with financial instruments against credit risk to the case of multiple types of credit risk. We show that standard results on the optimal hedge ratio and risk management effectiveness in the case of one single source of credit risk to carry over a loan portfolio in a non-trivial but intuitive way. While we focus on credit risk and credit derivatives, our analysis can be easily applied to other financial assets, which can be traded in futures market.

Keywords

EN

risk management; credit risk; loan portfolio; derivatives; hedging effectiveness

• Publisher: Uniwersytet Ekonomiczny w Poznaniu
• Journal: Economics and Business Review
• Year: 2017
• Volume: 3(17)
• Issue: 4
• Pages: 47-54

Dates

published

2017-12-20

Contributors

author

Broll Udo

• Technische Universität Dresden, School of International Studies (ZIS), Department of Business and Economics, 01062 Dresden, Germany

author

Guo Xu

• School of Stastitics, Beijing Normal University, Beijing, China

author

Welzel Peter

• Universität Augsburg, Germany.

References

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Identifiers

DOI

10.18559/ebr.2017.4.3