The option pricing framework has been very useful in tackling a wide range of problems. Merton pioneered the application of this methodology to the pricing of deposit insurance for financial institutions. Most applications in the deposit insurance area assume that the volatility of the assets of...

Merton pioneered the application of the option pricing framework to the pricing of deposit insurance for financial institutions. Most applications in the deposit insurance area assume that the volatility of the assets of the bank is exogenous whereas is may be more realistic to assume it is...