Working Paper
The valuation of bank loans has attracted a lot of attention recently, and the case for marking-to-market loan portfolios has been made. In this note five different valuation methods are evaluated vis-à-vis a benchmark, the Loan Arbitrage-Free Valuation. This model takes into account five variables that should be reflected in the economic value of a loan transaction, namely the probability of failure, the recovery rate, tax implications, the level of debt and equity funding, and the risk premium demanded by the market.
Faculty
Emeritus Professor of Banking and Finance
