Strategic Risk and Cost Adjusted Pricing

RiskNEWS, March 2003

12 Pages Posted: 18 Apr 2003

See all articles by Uwe Wehrspohn

Uwe Wehrspohn

Wehrspohn GmbH & Co. KG; University of Wuerzburg

Abstract

One of the main components of the credit risk management of individual clients is the correct risk and cost adjusted pricing of financial products on the background of a financial institution's profitability targets.

The article derives pricing formulas for fixed rate bonds, i.e. for zero bonds, straight bonds, and amortizing bonds, and for European options that consider the exact cash flow structure of the products and integrate refinance costs, costs of risk, costs of equity and production expenses.

Finally, we show how the results can be integrated in a bank's internal funds transfer pricing methodology.

Note: The downloadable paper is in German.

JEL Classification: G21

Suggested Citation

Wehrspohn, Uwe, Strategic Risk and Cost Adjusted Pricing. RiskNEWS, March 2003, Available at SSRN: https://ssrn.com/abstract=387120 or http://dx.doi.org/10.2139/ssrn.387120

Uwe Wehrspohn (Contact Author)

Wehrspohn GmbH & Co. KG ( email )

Nietzschestraße 20
Mannheim, D-68165
Germany
+49 (0) 621 14626754 (Phone)

HOME PAGE: http://www.wehrspohn.info

University of Wuerzburg ( email )

Sanderring 2
Wuerzburg, Bavaria 97070
Germany
+49 (0)931 / 3184806 (Phone)
+49 (0)931 / 312 95 5 (Fax)

HOME PAGE: http://www.fzrm.uni-wuerzburg.de

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