This paper provides a methodology for valuing a basket Loan CDS (LCDS) by considering both default and prepayment risks. Under “top down” and intensity framework, using a single-factor model, correlated default and prepayment risks are considered, where the stochastic interest rate is used to be their common factor. All stochastic processes in the model are assumed to follow CIR processes. Through Feynman-Kac formula, we obtain a PDE problem and its closed-form solution. Numerical examples are provided
Chinese agriculture is experiencing a transition from smallholder farming to the emergence of commercial farms that are characterized by intensification and specialization in production, as well as commercialization and cooperation in management. It requires substantial capital to facilitate such a transition, but it is very difficult for farmers in China to access bank credit. One way that commercial farms have to overcome such handicap is by organizing themselves into cooperatives. To assess the effect of cooperatives on the credit accessibility of commercial farms, we have developed a theoretical model as well as an empirical study of commercial farms in Jiangsu Province based on data from a survey of 754 commercial farm owners. Instrumental variable (IV) methods and the Propensity Score Matching (PSM) method that control endogeneity problem are used in the analysis. The empirical results show that cooperatives have a significant positive impact on the credit access of commercial farms. Commercial farms participating in cooperatives may alleviated their credit constraints by about 17.3 percentage points and increase the average credit per capita by nearly 80,000Yuan. Cooperatives improve the credit access of commercial farms by exerting strong market power and reputation effect based on its organizational advantages. A disaggregated analysis also reveals that small commercial farms tend to benefit more from cooperatives in improving credit access than large commercial farms.
This paper provides a methodology for valuing a Loan Credit Default Swap Index (LCDX) and its tranches involving both default and prepayment risks. The valuation is path dependence, where interest, default and prepayment rates are correlated stochastic processes following CIR processes. By Monte Carlo simulation, a numerical solution and team structure of tranched LCDX are obtained. Computing examples are provided
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