The impact of high-order risk attitudes on bank's loan policy

  • Yuchen LUO

Student thesis: MPhil Thesis (Lingnan)


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.
Date of Award2015
Original languageEnglish
Awarding Institution
  • Department of Finance and Insurance
SupervisorJingyuan LI (Supervisor)

Cite this