Study Of Line Of Credit To Real Estate Developers On Stackelberg Game

In recent years, two problems in China's real estate financial market are causing the gradual risk transfer from real estate industry to financial instructions, one is the excessive dependence of real estate developers on banks, while the other is the excessive financial support of banks to developers. Hence, implementing credit management to make coordinated planning of risk and return is an important approach to ensure banks'security and profitability, which makes line of credit, the core of credit management, an essential decision-making problem for every bank today.This paper mainly researches on line of credit to real estate developers, using a method of theory combining with practice, it studies how banks should decide line of credit to optimize risk and return. First of all, basing on the analysis about present situation of banks'credit to real estate developers, it discusses some main problems every bank faces under today's credit pattern and gives the summary of several methods widely used by banks to calculate line of credit, as well as their deficiency in risk control and benefit enhancement. Secondly, after the introduction of Stackelberg game theory, the paper makes a deep analysis on the Stackerlberg relationship between developers and banks during the credit service, after that an objective function of banks according to the structures of economic value added(EVA)and risk adjusted return on capital (RAROC) is designed, so as the target function of real estate developers according to best financial structure, thus the Stackelberg model is built and equilibrium solution is discussed in a simple way. Finally, it studies how to decide two important parameters in the model, probability of default(PD) and loss given default(LGD), both of which influence the practicality of the model seriously. After the comparison of technical requirements and applicable conditions of existing methods to assess the two parameters, it gives separately the basic processes to estimate PD using artificial neural network and LGD using workout value measurement.This paper proposes a new method to decide line of credit to real estate developers theoretically, providing banks with certain theoretical support to improve credit management and control the risk of credit to real estate industry, so the research is quite meaningful in practice.