Multi-Period Loan Interest Rate Nash Model with Basel II Solvency Constraint

Abstract

This paper introduces multi–period loan interest rate Nash game models in the banking sector under regulatory solvency constraints. By taking solvency constraint as Basel II and modelling economic condition as AR(1) process, we obtain results regarding the existence of loan interest rate equilibrium. A sensitivity analysis for the solvency constraint model and some numerical results are presented.

Keywords

• nash equilibrium model
• one factor kmv/riskmetrics model
• basel ii solvency constraint
• credit rating
• loan interest rate