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Can a Loan Valuation Adjustment (LVA) approach immunize collateralized debt from defaults?

Wojakowski, R. M. and Ebrahim, M. S. and Jaafar, A. and Salleh, M. O. (2019) 'Can a Loan Valuation Adjustment (LVA) approach immunize collateralized debt from defaults?', Financial markets, institutions and instruments., 28 (2). pp. 141-158.


This study focuses on structuring tangible asset backed loans to inhibit their endemic option to default. We adapt the pragmatic approach of a margin loan in the configuring of collateralized debt to yield a quasi‐default‐free facility. We link our practical method to the current Basel III (2017) regulatory framework. Our new concept of the Loan Valuation Adjustment (LVA) and novel method to minimize the LVA converts the risky loan into a quasi risk‐free loan and achieves value maximization for the lending financial institution. As a result, entrepreneurial activities are promoted and economic growth invigorated. Information asymmetry, costly bailouts and resulting financial fragility are reduced while depositors are endowed with a safety net equivalent to deposit insurance but without the associated moral hazard between risk‐averse lenders and borrowers.

Item Type:Article
Full text:Publisher-imposed embargo until 05 March 2021.
(AM) Accepted Manuscript
First Live Deposit - 28 September 2018
File format - PDF
Publisher Web site:
Publisher statement:This is the accepted version of the following article: Wojakowski, R. M., Ebrahim, M. S., Jaafar, A. & Salleh, M. O. (2019). Can a Loan Valuation Adjustment (LVA) Approach Immunize Collateralized Debt from Defaults? Financial Markets, Institutions and Instruments 28(2): 141-158., which has been published in final form at This article may be used for non-commercial purposes in accordance With Wiley Terms and Conditions for self-archiving.
Record Created:28 Sep 2018 11:13
Last Modified:10 Apr 2019 10:27

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