Kuo, C. J., Chen, C. M., Sung, C. H., and Lai, L. H. 2009. A New Approach to Evaluate Guaranty Fees on Credit Guarantee Schemes: The Combination of Risk-Neutral Model and Actuarial Valuation Principles. NTU Management Review, 19 (2): 037-056
Chau-Jung Kuo, Professor, Department of Finance, National Sun Yat-sen University
Chin-Ming Chen, Assistant Professor, Department of Money and Banking, National Kaohsiung First University of Science and Technology
Chao-Hsien Sung, Ph. D. Candidate, Department of Finance, National Sun Yat-sen University
Li-Hau Lai, Associate Professor, Department of Risk Management and Insurance, National Kaohsiung First University of Science and Technology
Abstract
According to the practices of banks in Taiwan, two interest rates will be applied to a commercial loan guaranteed by Small and Medium Enterprise Credit Guarantee Fund (SMEG), one for the guaranteed part, and the other the non-guaranteed part. Based on this rate discrepancies, this paper tries to evaluate the credit risk of SMEG's main guarantee programs by integrating the risk-neutral model with actuarial valuation principles, and to derive the optimal guaranty fees model. The empirical results show that the realistic subrogation payment is close to the total guaranty fees estimated by the proposed model. That is to say, this model has incorporated the accurate credit status of a loan, and to the best, this market information is also convenient to observe. It is hoped to make some contributions in controlling credit risk and establishing reasonable guaranty fee structures for SMEG.
Keywords
credit guarantee risk neutral