淡江大學機構典藏:Item 987654321/91603
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    Title: A barrier option framework for bank interest margin management under anticipatory regret aversion
    Authors: Lin, Jyh-Horng;Hung, Wei-Ming
    Contributors: 淡江大學國際企業學系
    Keywords: Bank interest margin;Regret aversion;Barrier option;Bank equity valuation
    Date: 2013-07
    Issue Date: 2013-07-16 09:47:54 (UTC+8)
    Publisher: Amsterdam: Elsevier BV
    Abstract: This paper proposes a framework for bank equity valuation based on a path-dependent, barrier option model. A direct implication of this framework is that bank equity will be priced as a down-and-out call option. Using this approach, we examine how bank interest margin, i.e., the spread between the loan rate and the deposit rate, is determined when a bank is regret-averse. Regret-averse preferences are characterized by a down-and-in call, which is specified as the difference between a standard call and a down-and-out call. The model demonstrates how anticipatory regret aversion and the default barrier jointly determine an optimal bank interest margin decision. We find that a bank interest margin with a low level of default barrier is negatively related to anticipatory regret aversion and to the default barrier. Regret aversion and default barriers make a bank less prudent and more prone to risk-taking, thereby adversely affecting the stability of the banking system.
    Relation: Economic Modelling 33, pp.794-801
    DOI: 10.1016/j.econmod.2013.06.007
    Appears in Collections:[Graduate Institute & Department of International Business] Journal Article

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