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How much of a loan should a lender dynamically retain and how does retention affect loan performance? We address these questions in a dynamic agency model in which a lender originates loans that it can sell to investors. The lender reduces default risk through screening at origination and...
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This paper derives a bank capital allocation model and applies it in the determinants of securitization. According to … increase riskier loans to raise capital return, or to decrease loans to alleviate risk.Securitization is one way to alleviate … securitization to maximize utility. To derive a bank capital allocation model, HJB equation in control theory and a specific utility …
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