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Assessing Credit Risk in a Financial Institution's Off-Balance Sheet Commitments

Published online by Cambridge University Press:  06 April 2009

John Hull
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Abstract

The first part of this paper presents a general approach to valuing a financial institution's contracts when there is credit risk. The approach uses contingent claims pricing theory and is particularly appropriate for an off-balance sheet contract, such as a swap, that can have either a positive or a negative value to the counterparty. The second part of the paper extends the analysis by considering the problem, faced by bank supervisory authorities, of determining capital requirements for off-balance sheet contracts.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 24 , Issue 4 , December 1989 , pp. 489 - 501
Copyright
Copyright © School of Business Administration, University of Washington 1989

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