Abstract: In this paper, the determination of pledged loan-to-value ratio under an option pricing environment is investigated. The basic idea is that the present value of pledged loan payoff is equal to a put option’s value. While the interest rate is fixed and the loan is without coupon, the interrelation of pledged ratio and some factors, such as maturity, excess return and the value volatility of pledge are analyzed. Then, the same work is extended to coupon loan and portfolio pledge circumstances. For zero coupon and fixed interest rate circumstances, a numerical example is performed. The findings are as follows: firstly, the numerical result indicate that loan-to-value ratio is a convex decreasing function of maturity. Secondly, loan-to-value ratio is a concave decreasing function of value volatility of pledge. Thirdly, loan-to-value ratio is a concave increasing function of risk premium. For floating interest rate circumstances, the function form between loan interest and risk free rate shouldbe specified.

Key words: pledged loan, loan-to-value ratio, put option, term structure of pledged ratio, value volatility of pledge