Pricing and Hedging of Contingent Credit Lines
by Elena Loukoianova of the International Monetary Fund,
Abstract: Contingent credit lines (CCLs) are widely used in bank lending and also play an important role in the functioning of short-term capital markets. Yet, their pricing and hedging has not received much attention in the finance literature. Using a financial engineering approach, the paper analyzes the structure of simple CCLs, examines methods for their pricing, and discusses the problems faced in hedging CCL portfolios.
Keywords: Contingent credit line (CCL), pricing, hedging.
Published in: Journal of Derivatives, Vol. 14, No. 3, (Spring 2007), pp. 61-79.