Formal Informal Bridge Loan Handling

back to Fan's Dynamic Assets Repository Table of Content.

Contents

function [ar_aprime_nobridge, ar_b_bridge, ar_c_bridge] = ffs_fibs_inf_bridge(varargin)

FFS_FIBS_INF_BRIDGE Amount of Informal Borrowing Needed as Bridge Loans

Bridge loan needed to pay for debt that is still unpaid due to insufficient cash on hand. Potentially, only informal lender is willing to extend this loan offers. So some existing debts are paid back with revenue, parts that revenue can not cover is paid back potentially with informal borrowing. This works with single and multiple assets.

@param bl_b_is_principle boolean solving with aggregate save/borr as principles + interests, or just principles no interests. If true, principels only, no interests. These refer to the ar_aprime vector.

@param fl_r_bridge float interest rate for bridge loan

@param fl_r_fsv float (formal) savings interest rate

@param fl_r_fbr float borrowing interest rate

@param ar_aprime array N by 1 level of aggregate borrowing including potentially bridge loan. Note that bridge loan is needed if coh is negative and households can not pay back principle and interests.

@param ar_coh_today array N by 1 the level of cash-on-hand today, when the borrowing and savings decisions are made. If this is positive, then households freely borrow, do not need bridge loans. If this is negative households need to first borrow to meet bridge loan needs.

@return ar_aprime_nobridge array next period asset choice without debt incurred for bridge loans. This is the difference between ar_coh_today and ar_b_bridge.

@return ar_b_bridge array bridge loan debt to pay for unpaid uncovered cash-on-hand. Includes interests and principle if bl_b_is_principle is false. If bl_b_is_principle is true, only includes principle.

@return ar_c_bridge array consumption gain (for today) from bridge loan, or consumption costs (for next period) of bridge loans. Both consider the impact of principles as well as interest rates on bridge loans.

@example

bl_input_override = true;
[ar_aprime_nobridge, ar_c_bridge] = ...
     ffs_fibs_inf_bridge(bl_b_is_principle, fl_r_bridge, ...
                           ar_aprime, ar_coh_today, ...
                           bl_display_infbridge, bl_input_override);

@seealso

Default and Parse Parameters

if (~isempty(varargin))

    % override when called from outside
    [bl_b_is_principle, fl_r_bridge, ar_aprime, ar_coh_today, bl_display_infbridge] = varargin{:};

else
    close all

    % Default
    it_param_set = 4;
    [param_map, ~] = ffs_ipwkbz_fibs_set_default_param(it_param_set);

    % Gather Inputs from param_map
    params_group = values(param_map, {'bl_b_is_principle', 'fl_r_inf'});
    [bl_b_is_principle, fl_r_inf] = params_group{:};
    % bl_b_is_principle = true;

    % For benchmark, assume that the informal lender
    fl_r_bridge = fl_r_inf;

    % Testing COH and Aprime Vectors
    ar_aprime =    [-20. -5,-5, -4.5,-4.5, -0.1,-0.1]';
    ar_coh_today = [-19, 1, -1,   1,-1,      1,0 ]';

%     % Testing COH and Aprime coh is row vector, aprime is column vector
%     ar_aprime =    linspace(-5, 10, 5)';
%     ar_coh_today = linspace(-10, 0, 10);

    % Set Display Control
    bl_display_infbridge = true;
end

Error using containers.Map/values
The specified key is not present in this container.

Error in ffs_fibs_inf_bridge (line 80)
    params_group = values(param_map, {'bl_b_is_principle', 'fl_r_inf'});

Bridge Loan Required

when coh <= cmin/0. Income does not fully repay debts. Suppose formal lenders have strict rules about not allowing for roll-over. Then when this happens, households would go to default state if default is allowed. If default is not allowed, households would never borrow such that coh ends up lower than 0. But now informal lender comes in and is willing to offer bridge loan. This bridge loan might be a fraction of total debt taken out last period, and it will become share of the debt carried on today. Or households after using bridge loan to cover debt, actually end up saving in net.

ar_b_bridge = zeros(size(ar_coh_today));

if (bl_b_is_principle)

    % c_bridge is cost of borrowing in next period consumption
    ar_b_bridge(ar_coh_today<0) = ar_coh_today(ar_coh_today<0);
    ar_c_bridge = ar_b_bridge.*(1+fl_r_bridge);

else

    % c_bridge is the gain from borrowing in current period consumption
    ar_b_bridge(ar_coh_today<0) = ar_coh_today(ar_coh_today<0).*(1+fl_r_bridge);
    ar_c_bridge = (-1)*ar_b_bridge./(1+fl_r_bridge);

end

% remaining aprime after allocating to pay debt not covered by coh
ar_aprime_nobridge = ar_aprime - ar_b_bridge;

Display

if (bl_display_infbridge)

    disp(['bl_b_is_principle:', num2str(bl_b_is_principle)]);
    disp(['fl_r_bridge:', num2str(fl_r_bridge)]);
    disp(['ar_aprime:', num2str(ar_aprime')]);
    disp(['ar_b_bridge:', num2str(ar_coh_today')]);
    disp(['bl_display_infbridge:', num2str(bl_display_infbridge)]);

    tab_aprime_bridge = table(ar_coh_today, ar_aprime, ar_b_bridge, ar_c_bridge, ar_aprime_nobridge);
    tab_aprime_bridge.Properties.VariableDescriptions{'ar_coh_today'} = ...
        '*ar_coh_today*: cash on hand someone arrives in the period with given debt and current income';
    tab_aprime_bridge.Properties.VariableDescriptions{'ar_aprime'} = ...
        '*ar_aprime*: func called during finding optimal aprime, this is the current aprime overall choice';
    tab_aprime_bridge.Properties.VariableDescriptions{'ar_b_bridge'} = ...
        '*ar_b_bridge*: amount of bridge loan required to cover negative coh (includes interest if bl_b_is_principle = false)';
    tab_aprime_bridge.Properties.VariableDescriptions{'ar_c_bridge'} = ...
        '*ar_c_bridge*: consumption gain today from the bridge loan to cover negative coh; or consumption cost tomorrow for debt which increases c today';
    tab_aprime_bridge.Properties.VariableDescriptions{'ar_aprime_nobridge'} = ...
        ['*ar_aprime_nobridge*ar_aprime_nobridge:' ...
         'aprime = -10, -5 for bridge; -5 left for other borrowing choices;' ...
         'aprime = -10, -11 for bridge (given r), +1 savings left, reduces consumption, back to neg coh, infeasible state;'];

    disp(tab_aprime_bridge);
    sc_summary = summary(tab_aprime_bridge);
    cl_var_name = fieldnames(sc_summary);
    for it_var_name = 1:length(cl_var_name)
        disp(sc_summary.(cl_var_name{it_var_name}).Description);
    end

end

end

Published with MATLAB® R2019a