The following information was submitted:
Transactions: WSEAS TRANSACTIONS ON MATHEMATICS
Transactions ID Number: 29-828
Full Name: Jyh-Jiuan Lin
Position: Professor
Age: ON
Sex: Female
Address: 151 Ying-Chuan Road, Tamsui, Taipei County 251,
Country: TAIWAN
Tel: 886-2-2621-5656 ext. 2878
Tel prefix:
Fax: 886-2-2620-9732
E-mail address: 117604@mail.tku.edu.tw
Other E-mails: jjlinster@gmail.com
Title of the Paper: global diversification, hedging diversification, and default risk in bank equity: an option-pricing model
Authors as they appear in the Paper: Jyh-Horng Lin, Jyh-Jiuan Lin and Rosemary Jou
Email addresses of all the authors: lin9015@mail.tku.edu.tw,117604@mail.tku.edu.tw,893560135@s93.tku.edu.tw
Number of paper pages: 12
Abstract: Many banks diversify their operations, either across different national markets (global diversification), across different borrowers by offsetting credit risks (hedging diversification), or both. Can multiple diversifications provide greater safety for banks? This paper aims to answer this question by using an option-based pricing model to formulate the default risk in bank equity returns under global and hedging diversifications. In particular, we apply Vassalou and Xing¡¦s (2004) formula, which is a nonlinear option-based function of the default probability of an individual bank¡¦s equity return. This formula is calculated using the contingent claim methodology of Black and Scholes (1973) and Merton (1974). We find that the extent of global diversification may provide greater safety for banks, but also that the extent of hedging diversification may not.
Keywords: Default Risk, International Lending Diversification, Loan Portfolio Swap
EXTENSION of the file: .pdf
Special (Invited) Session: global diversification, hedging diversification, and default risk in bank equity: an option-pricing model
Organizer of the Session: 639-245
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