On Loan-to-value Ratio of Inventory Financing under Static Pledge and Dynamic Pledge Fashion

Given the price of pledged inventory follows geometric Brownian motions, the paper implements risk estimation strategies of "main body(+) debt" and comparatively analyzes loan-to-value ratio decision of banks under static pledge and dynamic pledge fashion. Based on these theory results, the case about inventory financing developed by banks and cooperating logistic firms is analyzed. The study shows: if price distribution of the inventory at the end of the loan may be acquired, analytic result of loan-to-value ratio in static pledge fashion can be solved; if the price of pledged inventory follows geometric Brownian motions, the largest loan-to-value under dynamic pledge fashion is determined.