The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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On the Valuation of Federal Loan Guarantees to Corporations
Published: 12/01/1980 | DOI: 10.1111/j.1540-6261.1980.tb02204.x
HOWARD B. SOSIN
Since 1956, Federal Loan Guarantee Programs have expanded to the point where recipients of guarantees represent most segments of the economy. Considerable debate centers on the determination of the magnitude of the liability of the Federal Government that is represented by these programs. This paper illustrates how option pricing techniques may be used to obtain estimates of the purely pecuniary costs of loan guarantees, interest saving to the firm on senior and junior debt, and implicit present value profitability indices of projects.