S. Zeng (PRC)
Optimization, Bank non-performing loans, Dynamic model, Shadow price
The concept of shadow price often appears in the finance and economics related literatures. The economic meanings of shadow prices relative to a special variable in different model can be quite different. This paper develops an optimal bank non-performing loans dynamic model and examines the economic meaning of the shadow price in the model - the Hamiltonian multiplier of bank non-performing loans growth rate. The shadow price is obtained by a negative marginal utility value related to the non-performing loans multiplying by the parameter of the utility function. Furthermore, the shadow price can be treated as a marginal cost of the bank non-performing loans.
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