Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5089129 | Journal of Banking & Finance | 2013 | 12 Pages |
Abstract
⺠We model the optimal principal write-down in a loan modification. ⺠The barrier option closed-form model pinpoints the optimal LTV reset. ⺠Lender loan value is maximized, strategic default by the borrower is minimized. ⺠A binomial model for more complex forms of debt is also presented. ⺠Modifications with shared equity mitigate moral hazard and reduce strategic default.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Sanjiv R. Das, Ray Meadows,