This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Market-Based Estimation of Default Probabilities and Its Application to Financial Market Surveillance

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Jorge A. Chan-Lau
Abstract

This paper reviews a number of different techniques for estimating default probabilities from the prices of publicly traded securities. These techniques are useful for assessing credit exposure, systemic risk, and stress testing financial systems. The choice of techniques was guided by their ease of implementation and their applicability to a wide cross-section of countries and markets. Simple one-period cases are studied to sharpen the reader's intuition, and the usefulness of each technique for enhancing financial surveillance is illustrated with real applications.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.imf.org/external/pubs/ft/wp/2006/wp06104.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/104.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 19 pages
Date of creation: 02 May 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/104

Contact details of provider:
Postal: International Monetary Fund, Washington, DC USA
Phone: (202) 623-7000
Fax: (202) 623-4661
Email:
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC

Order Information:
Web: http://www.imf.org/external/pubs/pubs/ord_info.htm

For technical questions regarding this item, or to correct its listing, contact: (Jim Beardow) or (Christopher F. Baum).

Related research
Keywords: Securities markets ; Financial risk ; Financial sector ; Exchange rate policy surveillance ; Bonds ; Asset prices ; International financial system ; Financial institutions ;

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Fons, Jerome S, 1987. " The Default Premium and Corporate Bond Experience," Journal of Finance, American Finance Association, vol. 42(1), pages 81-97, March. [Downloadable!] (restricted)
  2. Liu, Xiaoquan & Shackleton, Mark B. & Taylor, Stephen J. & Xu, Xinzhong, 2007. "Closed-form transformations from risk-neutral to real-world distributions," Journal of Banking & Finance, Elsevier, vol. 31(5), pages 1501-1520, May. [Downloadable!] (restricted)
  3. Reint Gropp & Jukka Vesala & Giuseppe Vulpes, 2002. "Equity and bond market signals as leading indicators of bank fragility," Conference Series ; [Proceedings], Federal Reserve Bank of Boston. [Downloadable!]
    Other versions:
  4. Jorge A. Chan-Lau, 2003. "Anticipating Credit Events Using Credit Default Swaps, with an Application to Sovereign Debt Crises," IMF Working Papers 03/106, International Monetary Fund. [Downloadable!]
  5. Ait-Sahalia, Yacine & Lo, Andrew W., 2000. "Nonparametric risk management and implied risk aversion," Journal of Econometrics, Elsevier, vol. 94(1-2), pages 9-51. [Downloadable!] (restricted)
    Other versions:
  6. Gurdip Bakshi & Nikunj Kapadia & Dilip Madan, 2003. "Stock Return Characteristics, Skew Laws, and the Differential Pricing of Individual Equity Options," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 16(1), pages 101-143.
  7. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June. [Downloadable!] (restricted)
  8. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-70, May. [Downloadable!] (restricted)
    Other versions:
  9. Roberto Blanco & Simon Brennan & Ian W Marsh, . "An empirical analysis of the dynamic relationship between investment-grade bonds and credit default swaps," Bank of England working papers 211, Bank of England. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Christian Capuano, 2008. "The option-iPoD. The Probability of Default Implied by Option Prices based on Entropy," IMF Working Papers 08/194, International Monetary Fund. [Downloadable!]
  2. Amadou N. R. Sy & Jorge A. Chan-Lau, 2006. "Distance-to-Default in Banking: A Bridge Too Far?," IMF Working Papers 06/215, International Monetary Fund. [Downloadable!]
Statistics
Access and download statistics

Did you know? The most prolific authors have over 700 items listed on IDEAS.

This page was last updated on 2010-3-16.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.