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.
| Identifer | oai:union.ndltd.org:ln.edu.hk/oai:commons.ln.edu.hk:fin_etd-1010 |
| Date | 08 October 2015 |
| Creators | LUO, Yuchen |
| Publisher | Digital Commons @ Lingnan University |
| Source Sets | Lingnan University |
| Language | English |
| Detected Language | English |
| Type | text |
| Format | application/pdf |
| Source | Theses & Dissertations |
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