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Author: Bo-Young Chang Publisher: ISBN: Category : Languages : en Pages : 21
Book Description
"There is a close link between prices of equity options and the default probability of a firm. We show that in the presence of positive expected equity recovery, standard methods that assume zero equity recovery at default misestimate the option-implied default probability. We introduce a simple method to detect stocks with positive expected equity recovery by examining option prices and propose a method to extract the default probability from option prices that allows for positive equity recovery. We demonstrate possible applications of our methodology with examples that include large financial institutions in the United States during the 2007-09 subprime crisis"--Abstract, p. ii.
Author: Bo-Young Chang Publisher: ISBN: Category : Languages : en Pages : 21
Book Description
"There is a close link between prices of equity options and the default probability of a firm. We show that in the presence of positive expected equity recovery, standard methods that assume zero equity recovery at default misestimate the option-implied default probability. We introduce a simple method to detect stocks with positive expected equity recovery by examining option prices and propose a method to extract the default probability from option prices that allows for positive equity recovery. We demonstrate possible applications of our methodology with examples that include large financial institutions in the United States during the 2007-09 subprime crisis"--Abstract, p. ii.
Author: Bo Young Chang Publisher: ISBN: Category : Business failures Languages : en Pages : 21
Book Description
"There is a close link between prices of equity options and the default probability of afirm. We show that in the presence of positive expected equity recovery, standard methods that assume zero equity recovery at default misestimate the option-implied default probability. We introduce a simple method to detect stocks with positive expected equity recovery by examining option prices and propose a method to extract the default probability from option prices that allows for positive equity recovery. We demonstrate possible applications of our methodology with examples that include large financial institutions in the United States during the 2007–09 subprime crisis."--Abstract, page ii.
Author: Jennifer S. Conrad Publisher: ISBN: Category : Languages : en Pages : 56
Book Description
We propose a novel method of estimating default probabilities using equity option data. The resulting default probabilities are highly correlated with estimates of default probabilities extracted from CDS spreads, which assume constant recovery rates. Additionally, the option implied default probabilities are higher in bad economic times and for firms with poorer credit ratings and financial positions. An inferred recovery rate, after controlling for liquidity effects, is also related to underlying business and firm conditions, varies across sectors and predicts subsequent equity returns.
Author: Christian Capuano Publisher: International Monetary Fund ISBN: 1451915055 Category : Business & Economics Languages : en Pages : 32
Book Description
We present a framework to derive the probability of default implied by the price of equity options. The framework does not require any strong statistical assumption, and provide results that are informative on the expected developments of balance sheet variables, such as assets, equity and leverage, and on the Greek letters (delta, gamma and vega). We show how to extend the framework by using information from the price of a zero-coupon bond and CDS-spreads. In the episode of the collapse of Bear Stearns, option-iPoD was able to early signal market sentiment.
Author: Christian Capuano Publisher: International Monetary Fund ISBN: 1451870523 Category : Business & Economics Languages : en Pages : 31
Book Description
We present a framework to derive the probability of default implied by the price of equity options. The framework does not require any strong statistical assumption, and provide results that are informative on the expected developments of balance sheet variables, such as assets, equity and leverage, and on the Greek letters (delta, gamma and vega). We show how to extend the framework by using information from the price of a zero-coupon bond and CDS-spreads. In the episode of the collapse of Bear Stearns, option-iPoD was able to early signal market sentiment.
Author: Timo Schläfer Publisher: Springer Science & Business Media ISBN: 3834966665 Category : Business & Economics Languages : en Pages : 124
Book Description
Timo Schläfer exploits the fact that differently-ranking debt instruments of the same issuer face identical default risk but different default-conditional recovery rates. He shows that this allows isolating recovery risk without any of the rigid assumptions employed by priors and implements his approach using credit default swap data.
Author: Christian Capuano Publisher: ISBN: Category : Default (Finance) Languages : en Pages : 29
Book Description
We present a framework to derive the probability of default implied by the price of equity options. The framework does not require any strong statistical assumption, and provide results that are informative on the expected developments of balance sheet variables, such as assets, equity and leverage, and on the Greek letters (delta, gamma, and vega). We show how to extend the framework by using information from the price of zero-coupon bond and CDS-spreads. In the episode of the collapse of Bear Stearns, option-iPoD was able to early signal market sentiment.
Author: Bo-Young Chang Publisher: ISBN: Category : Electronic books Languages : en Pages : 19
Book Description
"In this paper, we present a novel method to extract the risk-neutral probability of default of a firm from American put option prices. Building on the idea of a default corridor proposed in Carr and Wu (2011), we derive a parsimonious closed-form formula for American put option prices from which the probability of default can be inferred. The proposed method is easy to implement and helps overcome the main limitation of the method used in Carr and Wu (2011), which relies on the price of one deep-out-of-the-money put option. Our empirical results are based on seven large U.S. firms for the period 2002 to 2010. These results show that, in some cases, the option-implied probability of default can provide a more accurate estimate of default probability, compared to the estimates implied from credit default swap spreads"--Abstract.
Author: Bo-Young Chang
Author: Bo-Young Chang
Author: Bo Young Chang
Author: Jennifer S. Conrad
Author: Bo-Young Chang
Author: Christian Capuano
Author: Christian Capuano
Author: Azusa Takeyama
Author: Timo Schläfer
Author: Christian Capuano
Author: Bo-Young Chang