Updating the Option Implied Probability of Default Methodology

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: BGPE Discussion Paper ; No. 107

Classification and Topics

• Classification: Wirtschaft ; Model Construction and Estimation ; Model Evaluation, Validation, and Selection ; Optimization Techniques; Programming Models; Dynamic Analysis ; Asset Pricing; Trading Volume; Bond Interest Rates ; Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
• Subject: Option Implied Probability of Default ; Risk Neutral Density ; Cross Entropy ; Insolvenz ; Aktienoption ; Optionspreistheorie ; Statistische Verteilung ; Entropie ; Bankinsolvenz ; Risikomaß ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Vilsmeier, Johannes
• Event: Veröffentlichung
• (who): Friedrich-Alexander-Universität Erlangen-Nürnberg, Bavarian Graduate Program in Economics (BGPE)
• (where): Nürnberg
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/73447
• Last update: 10.03.2025, 11:43 AM CET