Using the Arbitrage Pricing Theory to Calculate the Probability of Financial Institution Failure: A Note
Where regulation is deemed desirable by authorities and where a risk based approach is preferred, how do regulators assess the riskiness inherent in a financial institution's balance sheet? A market measure of the probability of financial institution failure is developed in this paper. This measure incorporates the arbitrage pricing theory of Stephen A. Ross (1976), thus allowing for the inclusion of systematic sources of risk. Copyright 1995 by Ohio State University Press.
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Volume (Year): 27 (1995)
Issue (Month): 3 (August)
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