Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/102299
Authors: 
Matros, Philipp
Vilsmeier, Johannes
Year of Publication: 
2014
Series/Report no.: 
Discussion Paper, Deutsche Bundesbank 20/2014
Abstract: 
We derive multivariate risk-neutral asset distributions for major US financial institutions (FIs) using option implied marginal risk-neutral asset distributions (RNDs) and probabilities of default (PoDs). The multivariate densities are estimated by combining the entropy approach, dynamic copulas and rank correlations. Our density estimates yield information about the conditional distributions of the individual FIs, and we propose several financial distress measures based on default scenarios in the financial sector. Empirical results around the period of the US sub-prime crisis show that the proposed risk measures identify in a timely manner: i) the most distressed FIs in the system; ii) the systemically most important FIs; iii) the implicit bailout guarantees given to some FIs; and iv) a "too connected to fail" problem in the US financial sector throughout the year 2008.
Subjects: 
Financial Distress
Conditional Probability of Default
Copulas
Option Prices
Entropy Principle
JEL: 
C14
C32
G01
G21
ISBN: 
978-3-95729-053-3
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.