The option-iPoD. The Probability of Default Implied by Option Prices based on Entropy

We present a framework to derive the probability of default implied by the price of equity options. The framework does not require any strong statistical assumption, and provide results that are informative on the expected developments of balance sheet variables, such as assets, equity and leverage, and on the Greek letters (delta, gamma and vega). We show how to extend the framework by using information from the price of a zero-coupon bond and CDS-spreads. In the episode of the collapse of Bear Stearns, option-iPoD was able to early signal market sentiment

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Year of publication:	2008
Authors:	Capuano, Christian
Publisher:	Washington : International Monetary Fund
Subject:	Insolvenz \| Insolvency \| Aktienoption \| Stock option \| Entropie \| Entropy

Extent:	Online-Ressource (31 p)
Series:	IMF Working Papers
Type of publication:	Book / Working Paper
Language:	English
Notes:	Description based upon print version of record Contents; I. Introduction; II. The Problem; III. Solution; IV. What can Equity Options Say About Default?; V. Empirical Implementation; VI. Results; Tables; 1. Option Contracts Cycles; 2. Citigroup, Strikes, Volume and Weights; Figures; 1. Citigroup, February 12, 2008: Option -iPoD and the Probability Density Function; 3. Citigroup: Summary of Results; 2. Citigroup: Term-Structure of Option -iPoD on February 12, 2008; 4. Citigropu: Leverage-at-Risk; 3. Citigroup: Expected Balance Sheet Developments on February 12, 2008; VII. Listen to Option -iPoD. The Collapse of Bear Stearns 4. Moody's KMV Expected Default Frequency in One Year5. Listen to Option -iPoD. The Collapse of Bear Stearns; VIII. Caveats; 6. Bear Stearns, March 14, 2008: Option -iPoD and the Probability Density Function; IX. Zero-Coupon Option-iPoD; X. Conclusions; References; Appendices; 1. Results From The Ten Largest U.S. Financial Institutions; 2. Extension with Zero-Coupon Bond
ISBN:	978-1-4518-7052-7 ; 978-1-4519-9132-1 ; 978-1-4518-7052-7
Source:	ECONIS - Online Catalogue of the ZBW

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