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Title:Deriving the Term Structure of Banking Crisis Risk with a Compound Option Approach PDF Logo
Authors:Karmann, Alexander
Eichler, Stefan
Maltritz, Dominik
Issue Date:2010
Series/Report no.:Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Modeling Financial Market Risk F1-V4
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
G32
G12
Document Type:Conference Paper
Appears in Collections:Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie

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