CDS spreads are believed to reflect credit risks but remained stable for major UK banks during the subprime crisis. To explain this gap, we employ probabilities of default (PD) from stock options. These may differ from those obtained from debt instruments but are useful for practical reasons and...

This paper develops a framework to estimate the probability of default (PD) implied in listed stock options. The underlying option pricing model measures PD as the intensity of the jump diffusion that the underlying stock price becomes zero. We adopt a two stage calibration algorithm to obtain...