A quantitative model for structured microfinance

We develop a quantitative model for structured microfinance instruments, which are regarded as an important means for refinancing microfinance institutions. The quantitative credit risk model presented takes into account the peculiarities of microfinance institutions and can be used for pricing purposes and analyzing the risk inherence in different tranches of a structured microfinance investment vehicle. Additionally, we introduce an innovative pricing methodology that abstains from using the martingale probability measure. This approach is more appropriate for illiquid securitized debt of microfinance institutions. In a realistic application we check the robustness and demonstrate the advantages of the model presented.

► Development of a quantitative model for structured microfinance instruments. ► Approach takes into account the peculiarities of microfinance. ► Introduction of a pricing methodology that abstains from risk-neutral pricing. ► Realistic application and robustness check.