A Guide to Behavioural Modelling
First published:
ISBN: 978-1-78272-404-9
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Modelling Committed Credit Lines
Antonio Castagna
Modelling Committed Credit Lines
Introduction
Insights on Banks’ Recourse to Behavioural Models from a Focused IRRBB Stress Test
Implementing Regulatory Guidance on IRRBB Behavioural Models: Challenges and Opportunities
The Stakeholders of Interest Rate Risk Behavioural Models
Governance of Behavioural Models
The Nature of IRRBB and Typical Metrics Employed
A Framework for Developing NMD Behavioural Models
The Literature on NMD Behavioural Models
Interest Rate Risk of Non-maturity Bank Accounts: From Marketing to Hedging Strategy
NMDs and IRRBB: A Methodological Proposal for a Behavioural Model
NMD Modelling: A Financial Wealth Allocation Approach
A Benchmark Framework for NMDs: An Application
NMD Behavioural Models Used in Marketing
The Validation of NMD Behavioural Models
The Choice of Maturity Profile in NMD Behavioural Models
Acknowledging the Elephant in the Room: The Mismatch Centre
Prepayment Risk Modelling for ALM, Finance and FTP: A Survival Model
Modelling of Prepayment on Fixed Rate Residential Mortgages: A Logistic Regression Approach
A Simple Approach to Modelling Prepayment Events
Integrating Credit Risk within the ALM Framework
Modelling Committed Credit Lines
Accounting of the Sight Deposit and Hedging
Loan commitments or credit lines are the most popular form of bank lending representing a high percentage of all commercial and industrial loans by domestic banks. Various models exist in the literature for pricing loan commitments: Chava and Jarrow (2008), Jones and Wu (2009) and Bag and Jacobs (2012). These three articles model credit lines by considering many empirical features, but each focuses on only one or some of them, and none offer a complete framework. In fact, Bag and Jacobs allow for partial usage of credit lines, but the authors do not include in the analysis any dependence between default probability and withdrawals; Chava and Jarrow allow for stochastic interest rates and intensity of default, the probability of using credit lines is linked to default probability, but unfortunately (at least in the specified model) partial and multiple withdrawals are not allowed for; finally, Jones and Wu model credit line usage as a function of default probability, with an average deterministic withdrawal that is due to causes other than debtor creditworthiness.
The effects on withdrawals by the default probability, and hence the credit spread of the debtor, is well understood
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