Scandinavian Working Papers in Economics
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Bank of Finland Research Discussion Papers, Bank of Finland

No 3/2006:
Pricing risky bank loans in the new Basel II environment

Iftekhar Hasan () and Cristiano Zazzara ()

Abstract: Recently, banking literature has had a quest for appropriate pricing of bank loans under the new Basel II rules and has been in pursuit of possible outcomes for undertaking such credit risk. In this paper, we propose a simplified formula to price bank’s corporate loans, aiming at making bank managers aware of the creation/destruction of shareholder value. We show that the mathematical treatability of the proposed formula and its easy feeding with internal and market inputs allow simple implementation by the final user.

Keywords: Basel II; rating; pricing; exposure at default; EVA; (follow links to similar papers)

JEL-Codes: C63; G12; G21; G28; (follow links to similar papers)

49 pages, April 18, 2006

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This paper is published as:
Hasan, Iftekhar and Cristiano Zazzara, (2006), 'Pricing risky bank loans in the new Basel II environment', Journal of Banking Regulation, Vol. 7, July, No. 3/4, pages 243-267

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