Derived/matrix pricing for bank loans

The purpose of any derived-matrix pricing model (also referred to as price valuation models) is to accurately estimate the price or value of an asset at a given point in time. Derived-matrix price models generally add value only for relatively illiquid instruments, since prices for liquid assets can...

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Bibliographic Details
Published inCommercial Lending Review Vol. 17; no. 1; p. 21
Main Author Bloomenthal, Walter J
Format Trade Publication Article
LanguageEnglish
Published Riverwoods CCH INCORPORATED 01.01.2001
Subjects
Accounting
Balance sheets
Bank loans
Commercial credit
Credit analysis
Credit risk
Discount rates
Loans
Municipal bonds
Price quotations
Prices
Probability
Valuation
United States > US
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Summary:The purpose of any derived-matrix pricing model (also referred to as price valuation models) is to accurately estimate the price or value of an asset at a given point in time. Derived-matrix price models generally add value only for relatively illiquid instruments, since prices for liquid assets can usually be accurately determined from active trades, screens, and price quotes. While derived-matrix pricing models are currently used to price-value municipal bonds and high-yield bonds, their use in valuing bank loans is relatively new. The current push to use price models to value loans comes in large part from the prime rate mutual funds, which are required to price loans using fairvalue accounting. This is in contrast to commercial banks, which carry the vast majority of their loans at historical cost, which explains why banks have not had as much interest in price valuation models. Of course, and notwithstanding anything to the contrary, at any given time a loan (or any other asset for that matter) is worth no more nor less than what someone will pay you for it.
ISSN:0886-8204