Valuation – Banking and Pricing Loan Fees Model

File Name: Banking – Stochastic Loan Pricing Model

Location: Modeling Toolkit | Banking | Stochastic Loan Pricing Model

Brief Description: Illustrates how to price a bank loan based on commercial lending practices

Requirements: Modeling Toolkit, Risk Simulator

Special Credits: This model was contributed by Prof. Morton Glantz.

Stochastic models (Figure 154.1) produce an entire range of results and confidence levels feasible for the pricing run. Monte Carlo simulation fosters a more realistic (pricing) environment, and, as a result, involves elements of uncertainty too complex to be solved with deterministic pricing models.

 

Figure 154.1: Pricing of loan fees

 

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