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Measuring Value-at-Risk in Project Finance Transactions
Article first published online: 8 JAN 2007
DOI: 10.1111/j.1468-036X.2006.00288.x
Additional Information
How to Cite
Gatti, S., Rigamonti, A., Saita, F. and Senati, M. (2007), Measuring Value-at-Risk in Project Finance Transactions. European Financial Management, 13: 135–158. doi: 10.1111/j.1468-036X.2006.00288.x
Publication History
- Issue published online: 8 JAN 2007
- Article first published online: 8 JAN 2007
- Abstract
- Article
- References
- Cited By
Keywords:
- project finance;
- VaR;
- credit risk management
- C15;
- C65;
- G31;
- G33
Abstract
Despite the remarkable importance of project finance in international financial markets, no quantitative models to measure and quantify the risk associated with a deal for the project's lenders have been developed yet. The topic has recently become crucial, since the New Basle Capital Accord gives banks a choice of whether to adopt simpler (but possibly higher) standard capital requirements or to develop internal rating models for project finance transactions. The paper proposes how Monte Carlo simulations may be used to derive a Value-at-Risk estimate for project finance deals and discusses the critical issues that must be considered when developing such a model.