Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/73447 
Year of Publication: 
2011
Series/Report no.: 
BGPE Discussion Paper No. 107
Publisher: 
Friedrich-Alexander-Universität Erlangen-Nürnberg, Bavarian Graduate Program in Economics (BGPE), Nürnberg
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 has some serious drawbacks and hence an alternative procedure is suggested that is based on the Lagrange multipliers. Carrying out numerical evaluations and a practical application we find 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
Document Type: 
Working Paper

Files in This Item:
File
Size
677.19 kB





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