The research hypotheses related the price (interest rate) on a commercial loan to a set of loan characteristics. A sample of over 21,500 individual loans from 350 sample banks forms the basis for testing the research hypotheses. In general, the tests support the contingent claims model, although there is room for considerably more work; including the testing of the impact of variables not included in the model, replication to verify the performance of the model, and replication over the business cycle to determine the impact of changes in credit conditions on the model.

This study is a microeconometric study of the application of a contingent claims approach to the commercial lending decision. The theory of contingent claims was originally designed for pricing options, but the basic model has been adapted for other applications. In addition, previous empirical studies of bank commercial lending lacked a coherent theoretical framework. The purpose of this study is to develop research hypotheses from the contingent claims model and test them on a large sample of individual loans.