Evaluation of the Fair Credit Risk Premium in Commercial Lending
Résumé
We consider the problem of characterizing and computing the fair credit risk premium that a firm should pay when borrowing money from a bank. Using a risk-neutral approach, we show that there is a unique credit risk premium for a commercial loan depending on the firm's strategy such that the expected discounted value of the bank's payoff coincides with the loan's par value. We then propose a numerical procedure to estimate the premium.
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