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On the Management of Financial GuaranteesRobert C. MertonMIT Sloan School of Management; National Bureau of Economic Research (NBER); Harvard Business School - Finance Unit Zvi BodieBoston University - Department of Finance & Economics 1992 Financial Management, Financial Management Association, Vol. 21, No. 4, Winter 1992 Abstract: Guarantees of financial contracts, such as loans, deposit insurance, and swaps, pervade the financial system and play an important role in corporate and public finance. This paper develops a framework for analyzing the efficient management of such guarantees in both the private and public sectors. Within the private sector, it explores applications of guarantee management in non-financial corporations as well as financial institutions. Just as there are special advantages to having government rather than private entities provide guarantees, so there are special problems. The paper identifies these advantages and problems and explores some of the tradeoffs between government and private-sector solutions to the guarantee problem. A central point is that the principles for effective management of guarantees are the same, whether in the corporate, financial, or public sectors.
Number of Pages in PDF File: 44 Accepted Paper SeriesDate posted: September 14, 2009Suggested CitationContact Information
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