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Equity option-implied probability of default and equity recovery rate
Chang, Bo Young; Orosi, Greg - 2016
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...
Persistent link: https://www.econbiz.de/10011571821
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Costly External Finance, Liquidity Risk, and Default Risk
Yang, Jun - 2011
I use the 2007-2008 financial crisis to gauge how internal financial resources and external financial constraints mitigate or worsen the impact of the crisis on default risk of US industrial firms. I identify heterogeneity in short-term funding needs at the onset of the crisis by exploiting...
Persistent link: https://www.econbiz.de/10013128496
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Modelling Default Risk : A New Structural Approach
Yildirim, Yildiray - 2011
This paper provides an alternative approach to the structural credit risk models. The first-passage-time approach extends the original Merton (Journal of Finance 29, 449-470) model by accounting for the fact that the default may occur not only at the debt's maturity, but also prior to this date....
Persistent link: https://www.econbiz.de/10013130480
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Credit Derivatives and Corporate Default Prediction
Ye, Xiaoxia; Yu, Fan; Zhao, Ran - 2021
There have been 128 defaults among U.S. CDS reference entities between 2001 and 2020. Within this sample, the five-year CDS spread is a significant predictor of corporate default in models with equity market covariates and firm attributes. This finding holds for forecast horizons up to 12...
Persistent link: https://www.econbiz.de/10013213330
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Healthy... Distress... Default
Kakushadze, Zura - 2019
We discuss a simple, exactly solvable model of stochastic stock dynamics that incorporates regime switching between healthy and distressed regimes. Using this model, which is analytically tractable, we discuss a way of extracting expected returns for stocks from realized CDS spreads,...
Persistent link: https://www.econbiz.de/10012863946
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Default Contagion in a Two-Tree Economy
Ericsson, Jan; Jeanneret, Alexandre; Lu, Yiliu - 2021
We propose an explanation for default contagion based on a Lucas model with two independent debt-financed trees. The transmission mechanism is that variations in the size of one tree impact the level of risk premium and the default decision for all borrowers. If a negative shock hits one tree,...
Persistent link: https://www.econbiz.de/10013229878
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Business Cycles and the Bankruptcy Code : A Structural Approach
Elkamhi, Redouane - 2011
voluntary filing for bankruptcy. We find that conflict of interests that arises from the voluntary filing option of Chapter 11 …
Persistent link: https://www.econbiz.de/10013133686
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A Binary Model Versus Discriminant Analysis to Corporate Bankruptcies for Emerging Market
Makeeva, Elena - 2012
The problem of the firm bankruptcy prediction was investigated by foreign researchers in the 1930s and it still remains … bankruptcy and using models appropriate for prediction bankruptcy in the area of a construction industry during financial crisis …. This investigation has been carried out on the basis of logit and probit analysis. The main reasons of bankruptcy revealed …
Persistent link: https://www.econbiz.de/10013100924
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A Binary Model Versus Discriminant Analysis to Corporate Bankruptcies for Emerging Market
Makeeva, Elena - 2012
The problem of the firm bankruptcy prediction was investigated by foreign researchers in the 1930s and it still remains … bankruptcy and using models appropriate for prediction bankruptcy in the area of a construction industry during financial crisis …. This investigation has been carried out on the basis of logit and probit analysis. The main reasons of bankruptcy revealed …
Persistent link: https://www.econbiz.de/10013104287
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The Mills Ratio and the Behavior of Redeemable Bond Prices in the Gaussian Structural Model of Corporate Default
Spencer, Peter - 2017
This paper shows that forward default intensities in the Black and Cox (1976) model of corporate default can be expressed in terms of the Mills Ratio (Mills, 1926). The behavior of the forward default intensity and hence the survivorship functions then follows from inequalities that are...
Persistent link: https://www.econbiz.de/10012954783