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Title:Deriving the term structure of banking crisis risk with a compound option approach: The case of Kazakhstan PDF Logo
Authors:Eichler, Stefan
Karmann, Alexander
Maltritz, Dominik
Issue Date:2010
Series/Report no.:Discussion Paper Series 2: Banking and financial studies 2010,01
Abstract:We use a compound option-based structural credit risk model to infer a term structure of banking crisis risk from market data on bank stocks in daily frequency. Considering debt service payments with different maturities this term structure assigns a separate estimator for short- and long-term default risk to each maturity. Applying the Duan (1994) maximum likelihood approach, we find for Kazakhstan that the overall crisis probability was mainly driven by short-term risk, which increased from 25% in March 2007 to 80% in December 2008. Concurrently, the long-term default risk increased from 20% to only 25% during the same period.
Subjects:Banking crisis
bank default
option pricing theory
compound option
liability structure
JEL:G21
G17
G32
G12
G18
ISBN:978-3-86558-607-0
Document Type:Working Paper
Appears in Collections:Discussion Paper Series 2: Banking and Financial Studies, Deutsche Bundesbank

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