Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/106792
Authors: 
Vilsmeier, Johannes
Year of Publication: 
2014
Series/Report no.: 
Discussion Paper, Deutsche Bundesbank 43/2014
Abstract: 
In this paper we 'update' the option implied probability of default (option iPoD) approach recently suggested in the literature. First, a numerically more stable objective function for the estimation of the risk neutral density is derived whose integrals can be solved analytically. Second, it is reasoned that the originally proposed approach for the estimation of the PoD produces arbitrary results and hence an alternative procedure is suggested that is based on the Lagrange multipliers. Based on numerical evaluations and an illustrative empirical application we conclude that the framework provides very promising results.
Subjects: 
Option Implied Probability of Default
Risk Neutral Density
Cross Entropy
JEL: 
C51
C52
C61
G12
G24
G32
ISBN: 
978-3-95729-107-3
Document Type: 
Working Paper

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