Tranching And Pricing Of Multi-Bank Loan Pool

The purpose of this dissertation is to design an innovative mechanism for portfolio risk management of SME loans. Synthetic CDOs based on Multi-bank Loan Pool are designed and employed to diversify the credit risk of SME loans, and relieve the dilemma of SME financing. The mechanism can to some extent avoid the adverse selection caused by the information asymmetry in the process of SME loan resale, and reduce the efficiency loss of traditional securitization. Its implementation can effectively improve the liquidity of SME loans, and decrease the risk convergence and the costs of regulatory capital requirements for commercial banks. As a result, it will increase the supply of SME loans, and relieve the dilemma of SME financing.Firstly the transaction structure of SME loan synthetic CDOs based on Multi-bank Loan Pool is designed. The structure is composed of some credit derivatives and risk management methods. The innovative mechanism can effectively reduce the efficiency loss of traditional securitization, and relieve the dilemma of SME financing.Tranching of Multi-bank Loan Pool is the important premise to carry out the above structured mechanism. Auction Game is applied to derive the equilibrium of tranching security private issuance. Under the condition of two kinds of investors, a unique mixed strategy equilibrium is obtained for investors'auction of tranching security. According to the investors'sophistication and the quality of asset portfolio, the auctioning conditions of the second type of investors are derived. Issuers can maximize their expected revenue by issuing two tranches. Under the condition of more than two kinds of investors, a unique equilibrium is also obtained for investors'auction; issuers absorb numerous investors to action the tranches and maximize their expected revenue with more tranches.The characteristics and dependence structure of reference asset portfolio is one of keys for synthetic CDO tranche pricing. Multi-bank risk factors are considered in this thesis; a multi-factor Copula model is constructed to reflect the portfolio risk and dependence structure of Multi-bank Loan Pool designed above. Unconditional default probability distribution is derived under the conditional independence, the multivariate Normal Gaussian Copula model and multivariate Normal Inverse Gaussian Copula model are employed to investigate the characteristics of reference portfolio's default risk. The results show that the multivariate Normal Inverse Gaussian Copula model can not only reflect the default risk characteristics, but also catch the tail-fatness of reference loan portfolio.Under the no-arbitrage pricing framework of synthetic CDOs, expected default loss at each spread payment dates is the another key for tranche pricing. Homogeneous and heterogeneous loan portfolios are considered in this thesis. Expected default loss of Multi-bank Loan Pool and synthetic CDO tranche fair spreads are derived respectively. The results show that the above tranche pricing model can reflect the risk characteristics and seniority structure of synthetic CDOs designed in this thesis based on Multi-bank SME loan pool.