Economics and Business Review

ISSN 2392-1641
e-ISSN 2450-0097

Poznań University of Economics - Poland

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Volume 3 (17) Number 4 pp. 47-54

Udo Broll1, Xu Guo2, Peter Welze3

1. Technische Universität Dresden, School of International Studies (ZIS), Department of Business and Economics,
2
. School of Stastitics, Beijing Normal University, Beijing, China
3
. Universität Augsburg, Germany.

Risk sharing markets and hedging a loan portfolio: a note

Abstract:

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.
 

pub/2017_4_47.pdf Full text available in in Adobe Acrobat format:
http://www.ebr.edu.pl/volume17/issue4/2017_4_47.pdf
Keywords: risk management, credit risk, loan portfolio, derivatives, hedging effectiveness.

DOI: 10.18559/ebr.2017.4.3

For citation:

MLA Broll, Udo, et al. "Risk sharing markets and hedging a loan portfolio: a note." Economics and Business Review EBR 17.4 (2017): 47-54. DOI: 10.18559/ebr.2017.4.3
APA Broll, U., Guo, X., & Welze, P. (2017). Risk sharing markets and hedging a loan portfolio: a note. Economics and Business Review EBR 17(4), 47-54 DOI: 10.18559/ebr.2017.4.3
ISO 690 BROLL, Udo, GUO, Xu, WELZE, Peter. Risk sharing markets and hedging a loan portfolio: a note. Economics and Business Review EBR, 2017, 17.4: 47-54. DOI: 10.18559/ebr.2017.4.3