Implied Default Probabilities and Recovery Rates from Option Prices

We propose a novel method of estimating default probabilities using equity option data. The resulting default probabilities are highly correlated with estimates of default probabilities extracted from CDS spreads, which assume constant recovery rates. Additionally, the option implied default probabilities are higher in bad economic times and for ﬁrms with poorer credit ratings and ﬁnancial positions. An inferred recovery rate, after controlling for liquidity eﬀects, is also related to underlying business and ﬁrm conditions, varies across sectors and predicts subsequent equity returns

MoreLess

Year of publication:	2017
Authors:	Conrad, Jennifer S.
Other Persons:	Dittmar, Robert F. (contributor) ; Hameed, Allaudeen (contributor)
Publisher:	[2017]: [S.l.] : SSRN
Subject:	Optionspreistheorie \| Option pricing theory \| Kreditrisiko \| Credit risk

freely available

Full text |

More access options

doi.org

Check Google Scholar

In German libraries (KVK)

I need help

Which error do you want to report?

Report: URL of this record is broken

Please note: Sometimes more than one URL is available for a resource. Please click on "More Options" to display these URLs

Report: Addition of an URL to that resource

Please note: Sometimes more than one URL is available for a resource. Please click on "More Options" to display these URLs

Report: The language(s) of that resource is/are…

Please note: Required language not in the list? Please use comment field

Report: Addition of an identifier to that resource

Report: report typo

Report: Add statement

Report: Add keywords

Please use the commentary box to describe other errors

Would you like to receive a feedback?

Commentary

Please type the code from the image

For general questions please use this address.

Persistent link: https://www.econbiz.de/10012976113