Download or read book The Option iPoD written by Christian Capuano and published by . This book was released on 2008 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book The Option Ipod the Probability of Default Implied by Option Prices Basedon Entropy written by Christian Capuano and published by International Monetary Fund. This book was released on 2008-08-01 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book IMF Working Papers written by Christian Capuano and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Option iPoD written by Christian Capuano and published by International Monetary Fund. This book was released on 2008-08-01 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book Externalities and Macroprudential Policy written by Mr.Gianni De Nicolo and published by International Monetary Fund. This book was released on 2012-06-07 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: This note overviews macroprudential policy options that have been proposed to address the systemic risks experienced during the recent financial crisis. It contributes to the policy debate by providing a taxonomy of macroprudential policies in terms of the specific negative externalities in the financial system that these policies are meant to address, and discusses their interrelations and some key implementation issues.

Download or read book World Scientific Reference On Contingent Claims Analysis In Corporate Finance In 4 Volumes written by Michel Crouhy and published by World Scientific. This book was released on 2019-01-21 with total page 2039 pages. Available in PDF, EPUB and Kindle. Book excerpt: Black and Scholes (1973) and Merton (1973, 1974) (hereafter referred to as BSM) introduced the contingent claim approach (CCA) to the valuation of corporate debt and equity. The BSM modeling framework is also named the 'structural' approach to risky debt valuation. The CCA considers all stakeholders of the corporation as holding contingent claims on the assets of the corporation. Each claim holder has different priorities, maturities and conditions for payouts. It is based on the principle that all the assets belong to all the liability holders.The BSM modeling framework gives the basic fundamental version of the structural model where default is assumed to occur when the net asset value of the firm at the maturity of the pure-discount debt becomes negative, i.e., market value of the assets of the firm falls below the face value of the firm's liabilities. In a regime of limited liability, the shareholders of the firm have the option to default on the firm's debt. Equity can be viewed as a European call option on the firm's assets with a strike price equal to the face value of the firm's debt. Actually, CCA can be used to value all the components of the firm's liabilities, equity, warrants, debt, contingent convertible debt, guarantees, etc.In the four volumes we present the major academic research on CCA in corporate finance starting from 1973, with seminal papers of Black and Scholes (1973) and Merton (1973, 1974). Volume I covers the foundation of CCA and contributions on equity valuation. Volume II focuses on corporate debt valuation and the capital structure of the firm. Volume III presents empirical evidence on the valuation of debt instruments as well as applications of the CCA to various financial arrangements. The papers in Volume IV show how to apply the CCA to analyze sovereign credit risk, contingent convertible bonds (CoCos), deposit insurance and loan guarantees. Volume 1: Foundations of CCA and Equity ValuationVolume 1 presents the seminal papers of Black and Scholes (1973) and Merton (1973, 1974). This volume also includes papers that specifically price equity as a call option on the corporation. It introduces warrants, convertible bonds and taxation as contingent claims on the corporation. It highlights the strong relationship between the CCA and the Modigliani-Miller (M&M) Theorems, and the relation to the Capital Assets Pricing Model (CAPM). Volume 2: Corporate Debt Valuation with CCAVolume 2 concentrates on corporate bond valuation by introducing various types of bonds with different covenants as well as introducing various conditions that trigger default. While empirical evidence indicates that the simple Merton's model underestimates the credit spreads, additional risk factors like jumps can be used to resolve it. Volume 3: Empirical Testing and Applications of CCAVolume 3 includes papers that look at issues in corporate finance that can be explained with the CCA approach. These issues include the effect of dividend policy on the valuation of debt and equity, the pricing of employee stock options and many other issues of corporate governance. Volume 4: Contingent Claims Approach for Banks and Sovereign DebtVolume 4 focuses on the application of the contingent claim approach to banks and other financial intermediaries. Regulation of the banking industry led to the creation of new financial securities (e.g., CoCos) and new types of stakeholders (e.g., deposit insurers).

Download or read book Understanding Systemic Risk in Global Financial Markets written by Aron Gottesman and published by John Wiley & Sons. This book was released on 2017-06-15 with total page 268 pages. Available in PDF, EPUB and Kindle. Book excerpt: An accessible and detailed overview of the risks posed by financial institutions Understanding Systemic Risk in Global Financial Markets offers an accessible yet detailed overview of the risks to financial stability posed by financial institutions designated as systemically important. The types of firms covered are primarily systemically important banks, non-banks, and financial market utilities such as central counterparties. Written by Aron Gottesman and Michael Leibrock, experts on the topic of systemic risk, this vital resource puts the spotlight on coherency, practitioner relevance, conceptual explanations, and practical exposition. Step by step, the authors explore the specific regulations enacted before and after the credit crisis of 2007-2009 to promote financial stability. The text also examines the criteria used by financial regulators to designate firms as systemically important. The quantitative and qualitative methods to measure the ongoing risks posed by systemically important financial institutions are surveyed. A review of the regulations that identify systemically important financial institutions The tools to use to detect early warning indications of default A review of historical systemic events their common causes Techniques to measure interconnectedness Approaches for ranking the order the institutions which pose the greatest degree of default risk to the industry Understanding Systemic Risk in Global Financial Markets offers a must-have guide to the fundamentals of systemic risk and the key critical policies that work to reduce systemic risk and promoting financial stability.

Download or read book IMF Research Bulletin December 2008 written by International Monetary Fund. Research Dept. and published by International Monetary Fund. This book was released on 2008-12-11 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt: December 2008: IMF research summaries on global herding in financial markets (by Marco Cipriani) and on fiscal decentralization (by Lusine Lusinyan); article on the experiences of IMF staff at the Nobel Laureate Meetings in Lindau, Germany (by Chris Crowe); listing of visiting scholars at the IMF during August–December 2008; listing of contents of Vol. 55 No. 4 of IMF Staff Papers; listing of recent IMF Working Papers; listing of recent external publications by IMF staff; and a Call for Papers for an upcoming conference on structural reforms.

Download or read book Systemic Risk History Measurement And Regulation written by Kreis Yvonne and published by World Scientific. This book was released on 2019-06-04 with total page 196 pages. Available in PDF, EPUB and Kindle. Book excerpt: Systemic Risk: History, Measurement and Regulation presents an overview of this emerging form of risk from a global perspective. Systemic risks endanger entire financial systems, not just individual financial institutions. In this volume, the authors review how systemic risk has evolved over the last 40 years across continents to come to the forefront of regulatory attention. They then discuss transmissions channels, provide a review of systemic risk measures, and describe new regulations that have been introduced, as well as the theory and practice of financial stability committees that have been set up internationally. Overall, the book provides a practical guide to understand, identify, assess and control systemic risk.While the financial research on systemic risk has strongly increased since the events of 2008, this book is a first in providing a detailed yet concise overview of the topic, covering the history of systemic risk, its measurement, and its regulation. The authors provide both academic and practitioner-oriented insights, and draw on their different regions of expertise to provide a global perspective on systemic risk.

Download or read book Negative Interest Rates and Financial Stability written by Karol Rogowicz and published by Taylor & Francis. This book was released on 2022-12-01 with total page 247 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book sheds new light on a recently introduced monetary tool – negative interest rates policy (NIRP). It provides in-depth insight into this phenomenon, conducted by the central banks in several economies, for example, the Eurozone, Switzerland and Japan, and its possible impact on systemic risk. Although it has been introduced as a temporary policy instrument, it may remain widely used for a longer period and by a greater range of central banks than initially expected, thus the book explores its effects and implications on the banking sector and financial markets, with a particular focus on potentially adverse consequences. There is a strong accent on the uniqueness of negative policy rates in the context of financial stability concerns. The authors assess whether NIRP has any – or in principle a stronger – impact on systemic risk than conventional monetary policy. The book is targeted at presenting and evaluating the initial experiences of NIRP policy during normal, i.e. pre-COVID, times, rather than in periods in which pre-established macroeconomic relations are rapidly disrupted or, specifically, when the source of the disruption is not purely economic in nature, unlike in systemic crisis. The authors adopt both theoretical and practical approaches to explore the key issues and outline the policy implications for both monetary and macroprudential authorities, with respect to negative interest rate policy, thus the book will provide a useful guide for policymakers, academics, advanced students and researchers of financial economics and international finance.

Download or read book Recent Advances in Credit Risk Modeling written by and published by . This book was released on 2009 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: As is well known, most models of credit risk have failed to measure the credit risks in the context of the global financial crisis. In this context, financial industry representatives, regulators and academics worldwide have given new impetus to efforts to improve credit risk modeling for countries, corporations, financial institutions, and financial instruments. The paper summarizes some of the recent advances in this regard. It considers modifications of structural models, including of the classical Merton model, and efforts to reconcile the structural and the reduced-form models. It also discusses the reassessment of the default correlations using copulas, the pricing of credit index options, and the determination of the prices of distressed debt and estimation of recovery values

Download or read book Global Financial Stability Report written by and published by . This book was released on 2009 with total page 522 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Measuring Option Implied Degree of Distress in the Us Financial Sector Using the Entropy Principle written by Philipp Matros and published by . This book was released on 2016 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt: We estimate time series of option implied Probabilities of Default (PoDs) for 19 major US financial institutions from 2002 to 2012. These PoDs are estimated as mass points of entropy based risk neutral densities and subsequently corrected for maturity dependence. The obtained time series are evaluated with regard to their consistency and predictive power and their properties are compared to Credit Default Swap Spreads (CDS). Moreover, we also derive an indicator for the systemic risk in the US financial sector. We find that the PoDs are superior to CDS in identifying the high risk banks prior to the Lehman crisis.

Download or read book Equity Option Implied Probability of Default and Equity Recovery Rate written by Bo Young Chang and published by . This book was released on 2019 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: There is a close link between prices of equity options and the probability of default of a firm. We show that in the presence of positive expected equity recovery, the standard methods that assume zero equity recovery at default misestimate the probability of default implicit in option prices. We introduce a simple method to detect stocks with positive expected equity recovery by examining option prices, and propose a method to extract the probability of default from option prices in the presence of positive expected equity recovery. Our empirical results based on six large financial institutions in the US during the 2007-2009 crisis show that assuming zero recovery leads to significant mispricing of options and misestimation of implied probability of default.

Download or read book Probability Distributions of Assets Inferred from Option Prices Via the Principle of Maximum Entropy written by Jonathan Borwein and published by . This book was released on 2002 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book A Framework for Extracting the Probability of Default from Stock Option Prices written by Azusa Takeyama and published by . This book was released on 2012 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book A Simple Method for Extracting the Probability of Default from American Put Option Prices written by Bo-Young Chang and published by . This book was released on 2020 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt: "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.