A system of interlinked balance sheets of intermediaries that follow the Value-at-risk rule has the feature that an increase in house prices transmits valuation changes through the value of debt instruments. The analysis uses the Vasicek credit risk model for the diversification of individual credit risks in the loan portfolio. Leverage and wholesale funding is key to understanding lending booms.
Fast Computation of the Economic Capital, the Value at Risk and the Greeks of a Loan Portfolio in the Gaussian Factor Model