Equity Option-implied Probability of Default and Equity Recovery Rate
Title | Equity Option-implied Probability of Default and Equity Recovery Rate PDF eBook |
Author | Bo-Young Chang |
Publisher | |
Pages | 21 |
Release | 2016 |
Genre | |
ISBN |
"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.
Equity Option-implied Probability of Default and Equity Rate
Title | Equity Option-implied Probability of Default and Equity Rate PDF eBook |
Author | Bo-Young Chang |
Publisher | |
Pages | 21 |
Release | 2016 |
Genre | Business failures |
ISBN |
Equity Option-implied Probability of Default and Equity Recovery
Title | Equity Option-implied Probability of Default and Equity Recovery PDF eBook |
Author | Bo Young Chang |
Publisher | |
Pages | 21 |
Release | 2016 |
Genre | Business failures |
ISBN |
"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.
The Option-Ipod. the Probability of Default Implied by Option Prices Basedon Entropy
Title | The Option-Ipod. the Probability of Default Implied by Option Prices Basedon Entropy PDF eBook |
Author | Christian Capuano |
Publisher | International Monetary Fund |
Pages | 32 |
Release | 2008-08-01 |
Genre | Business & Economics |
ISBN | 1451915055 |
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.
Implied Default Probabilities and Recovery Rates from Option Prices
Title | Implied Default Probabilities and Recovery Rates from Option Prices PDF eBook |
Author | Jennifer S. Conrad |
Publisher | |
Pages | 56 |
Release | 2017 |
Genre | |
ISBN |
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.
The Option-iPoD
Title | The Option-iPoD PDF eBook |
Author | Christian Capuano |
Publisher | |
Pages | 29 |
Release | 2008 |
Genre | Default (Finance) |
ISBN |
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.
The Option-iPoD
Title | The Option-iPoD PDF eBook |
Author | Christian Capuano |
Publisher | International Monetary Fund |
Pages | 31 |
Release | 2008-08-01 |
Genre | Business & Economics |
ISBN | 1451870523 |
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.