Search results

1 – 2 of 2
Per page
102050
Citations:
Loading...
Access Restricted. View access options
Article
Publication date: 28 August 2009

Giacomo De Laurentis and Jacopo Mattei

The purpose of this paper is to verify recovery risk management capabilities by lessors. It tests several hypotheses and finds out interesting specific results for lessors.

1579

Abstract

Purpose

The purpose of this paper is to verify recovery risk management capabilities by lessors. It tests several hypotheses and finds out interesting specific results for lessors.

Design/methodology/approach

The approach is empirical: two different database of leasing contracts are analysed with econometric methodologies.

Findings

There is clear evidence that: lessors are ex ante able to balance the probability of default and the loss given default case by case, using proper contract structures; and they carefully manage recovery procedures and strategies according to operations' characteristics.

Research limitations/implications

The data used are large enough, but come from institutions concentrated in Italy. Future research could be extended to other relevant countries.

Practical implications

Results presented are verified in leasing companies which made a limited use of rating systems and credit risk model: they have been achieved by the continuous improvements of traditional lending practices. The development of modern reliable systems can enhance risk management capabilities; our findings can help building more structured and advanced credit risk management tools.

Originality/value

The paper adds to the literature in the sense that gives clear evidence of a neglected but important fact of real world credit markets: financial intermediaries have the capability of properly assessing risk components and manage loss given default (LGD) in order to control overall credit risk.

Details

Managerial Finance, vol. 35 no. 10
Type: Research Article
ISSN: 0307-4358

Keywords

Access Restricted. View access options
Article
Publication date: 28 August 2009

Enrico Moretto and Giulio Tagliavini

The purpose of this paper is to investigate how asset risk (i.e. the risk that the value of the leased asset loses unexpectedly most of its value at the end of the contract) is…

1670

Abstract

Purpose

The purpose of this paper is to investigate how asset risk (i.e. the risk that the value of the leased asset loses unexpectedly most of its value at the end of the contract) is measured and hedged.

Design/methodology/approach

The evaluation of the lease contract is achieved by applying the theory of option pricing as the lessor is the writer of a call option on the leased asset. A sensitivity analysis on some parameters is performed.

Findings

The paper disentangles the components of the profit of a lease contract and allows to choose the optimal final purchase price. This lets the lessor hedge against asset risk.

Research limitations/implications

The paper's result can be extended by considering more complex options (such as American or exotic ones) into the lease contract.

Practical implications

Results in the paper allow for a more flexible and efficient management of lease contracts where both parties benefit under an economic and a financial point of view.

Originality/value

This is believed to be the first paper that applies derivative evaluation to the analysis of lease contracts.

Details

Managerial Finance, vol. 35 no. 10
Type: Research Article
ISSN: 0307-4358

Keywords

1 – 2 of 2
Per page
102050