Pricing and Hedging of Contingent Credit Lines

Neftci, Salih N.; Sharma, Sunil; Loukoianova, Elena

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Pricing and Hedging of Contingent Credit Lines

IMF Working Paper No. 06/13

26 Pages Posted: 3 Mar 2006

See all articles by Salih N. Neftci

Sunil Sharma

George Washington University - Elliott School of International Affairs; International Monetary Fund (IMF)

Elena Loukoianova

International Monetary Fund (IMF)

There are 2 versions of this paper

Date Written: January 2006

Abstract

Contingent credit lines (CCLs) are widely used in bank lending and also play an important role in the functioning of short-term capital markets. Yet, their pricing and hedging has not received much attention in the finance literature. Using a financial engineering approach, the paper analyzes the structure of simple CCLs, examines methods for their pricing, and discusses the problems faced in hedging CCL portfolios.

Keywords: Contingent credit line (CCL), pricing, hedging

JEL Classification: G13, G21, C15

Suggested Citation: Suggested Citation

Neftci, Salih N. and Sharma, Sunil and Loukoianova, Elena, Pricing and Hedging of Contingent Credit Lines (January 2006). IMF Working Paper No. 06/13, Available at SSRN: https://ssrn.com/abstract=888158