The Researches For The Risk And Pricing Of Loan Commitment

Loan commitments are contingent claims that commercial banks issue to provide their customers with a right to borrow a limited amount of funds at a given interest rate term within a specified time period, which are widely used in developed countries.As the use of loan commitments has grown, so has the literature on them. There is a great body of research have pointed out that a loan commitments can be view as a put option that banks sell to corporate customers giving them the right to sell debt to the banks at a specified price (interest rate) within a specified time period. But most of these theory give the price of loan commitments only built on interest rate risk However loan commitments cannot be viewed as the standard European or American. Besides the interest rate risk, there are quantity risk (take-down risk), liquidity risk within them. We know value comes from risk. So the existing theory of pricing of put option on common stock must be modified to corporate the crisis of them.Firstly, this article seeks to summarize what we have learned after years of research. Then we provide a new analysis to the crisis --- interest rate risk, quantity risk (take-down risk), liquidity risk--of loan commitments. At last we improve a new approach based on the B-S option pricing theory and the new analysis on the crisis of loan commitments.The main purpose of this paper is to analysis illustrate the applications of B-S option pricing model based on the crisis analyzed.