Date of Award
Master of Philosophy (MPHIL)
Finance and Insurance
Prof. LI, Jingyuan
It is well known that prudence plays an important role in the process of decision making under uncertainties. However, how prudence affects a bank's decision on extending fixed rate or variable rate loan has not yet been fully examined. In this dissertation, I use definition of second-order expectation dependence to further identify conditions for the risk prudent (imprudent) bank under state-dependent framework to refrain from extending fixed rate loans. Furthermore, using a set of actual data, I apply a recent developed inference procedure for testing positive expectation dependence to demonstrate the significance of my work in empirical applications. In the end, a non-parametric calibration is conducted and the result is highly consistent with the prevalence of banks that have preference for adjustable rate mortgage in U.S. 30-year prime mortgage market.
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Luo, Y. (2015). The impact of high-order risk attitudes on bank's loan policy (Master's thesis, Lingnan University, Hong Kong). Retrieved from http://commons.ln.edu.hk/fin_etd/12/