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The Enron Bankruptcy: When did the options market in Enron lose it’s smirk?

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  • Bruce Mizrach

Abstract

The Enron Corporation went from a $65 billion dollar market capitalization to bankruptcy in just 16 months. Using statistical techniques for extracting the implied probability distributions built into option prices, I examine the market’s expectation of Enron’s risk of collapse. I find that the options market remained far too optimistic about the stock until just weeks before their bankruptcy filing. Copyright Springer Science + Business Media, LLC 2006

Suggested Citation

  • Bruce Mizrach, 2006. "The Enron Bankruptcy: When did the options market in Enron lose it’s smirk?," Review of Quantitative Finance and Accounting, Springer, vol. 27(4), pages 365-382, December.
  • Handle: RePEc:kap:rqfnac:v:27:y:2006:i:4:p:365-382 DOI: 10.1007/s11156-006-0043-2
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    References listed on IDEAS

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    7. Das, Sanjiv Ranjan & Sundaram, Rangarajan K., 1999. "Of Smiles and Smirks: A Term Structure Perspective," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 34(02), pages 211-239, June.
    8. Rubinstein, Mark, 1994. " Implied Binomial Trees," Journal of Finance, American Finance Association, vol. 49(3), pages 771-818, July.
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    10. Mark Rubinstein., 1994. "Implied Binomial Trees," Research Program in Finance Working Papers RPF-232, University of California at Berkeley.
    11. Jackwerth, Jens Carsten & Rubinstein, Mark, 1996. " Recovering Probability Distributions from Option Prices," Journal of Finance, American Finance Association, vol. 51(5), pages 1611-1632, December.
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    Citations

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    Cited by:

    1. Bruce Mizrach, 2007. "Recovering Probabilistic Information From Options Prices and the Underlying," Departmental Working Papers 200702, Rutgers University, Department of Economics.
    2. Christoffersen, Peter & Jacobs, Kris & Chang, Bo Young, 2013. "Forecasting with Option-Implied Information," Handbook of Economic Forecasting, Elsevier.
    3. repec:wsi:rpbfmp:v:20:y:2017:i:03:n:s0219091517500175 is not listed on IDEAS
    4. Ehret, Michael, 2014. "Financial socialism: The role of financial economics in economic disorganization," Journal of Business Research, Elsevier, vol. 67(1), pages 2686-2692.

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    Keywords

    Volatility smile; Options; Enron; Bankruptcy;

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