Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/73447
Authors: 
Vilsmeier, Johannes
Year of Publication: 
2011
Series/Report no.: 
BGPE Discussion Paper 107
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

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