The interrelation between currency and debt crises is considered in a model relying on option pricing theory. By capturing uncertainty and time aspects in this stochastic and dynamic framework we analyze parameters that determine the probabilities and dependencies of these crises

During capital control episodes, large price deviations between American Depositary Receipts (ADR) and their underlying stocks signal that a currency crisis is about to occur. We interpret this price spread as the price of a call option. Using option pricing theory we derive detailed information...

The interrelation between currency and debt crises is considered in a model which relies on option pricing theory. This enables us to quantify the probability of financial crises and to study the importance of certain parameters for the occurrence of these crises