Market indicators, bank fragility, and indirect market discipline
As a theoretical matter, signals from the bond and equity markets satisfy minimal requirements for a useful indicator. Using option pricing formulas, it is shown that a distance to default measure, based on equity market value and equity volatility, increases with the market value of bank assets and decreases with bank leverage and equity volatility.
Volume (Year): (2004)
Issue (Month): Sep ()
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Working Paper Series
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