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