Mathematical Finance Seminar
March 1 2001, 5:30 PM to 7:00 PM
Stuart Turnbull, CIBC
A basic methodology for pricing a loan
In this paper we present a methodology for the pricing of loans that is
consistent with maximizing the wealth of existing shareholders. We will
answer the following questions. What are the costs associated with the
marginal economic capital of a loan? What is the appropriate measure of
profitability for a loan, keeping the probability of default
constant? What is the relevant bench mark? What is the relevant
transfer pricing methodology?