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Un modelo de riesgo de credito basado en opciones compuestas con barrera. Aplicacion al mercado continuo espanol

Author

Listed:
  • Maria Carmen Badia Batlle
  • M. Mercedes Galisteo Rodriguez
  • M. Teresa Preixens Benedicto

    (Universitat de Barcelona)

Abstract

In this work the valuation methodology of compound option written on a downand-out call option, developed by Ericsson and Reneby (2003), has been applied to deduce a credit risk model. It is supposed that the firm has a debt structure with two maturity dates and that the credit event takes place when the assets firm value falls under a determined level called barrier. An empirical application of the model for 105 firms of Spanish continuous market is carried out. For each one of them its value in the date of analysis, the volatility and the critical value are obtained and from these, the default probability to short and long-term and the implicit probability in the two previous probabilities are deduced. The results are compared with the ones obtained from the Geske model (1977).

Suggested Citation

  • Maria Carmen Badia Batlle & M. Mercedes Galisteo Rodriguez & M. Teresa Preixens Benedicto, 2006. "Un modelo de riesgo de credito basado en opciones compuestas con barrera. Aplicacion al mercado continuo espanol," Working Papers in Economics 156, Universitat de Barcelona. Espai de Recerca en Economia.
  • Handle: RePEc:bar:bedcje:2006156
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    References listed on IDEAS

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    1. Robert A. Jarrow, 2009. "Credit Risk Models," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 37-68, November.
    2. Briys, Eric & de Varenne, François, 1997. "Valuing Risky Fixed Rate Debt: An Extension," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 32(02), pages 239-248, June.
    3. Black, Fischer & Cox, John C, 1976. "Valuing Corporate Securities: Some Effects of Bond Indenture Provisions," Journal of Finance, American Finance Association, vol. 31(2), pages 351-367, May.
    4. 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 449-470, May.
    5. Jan Ericsson & Joel Reneby, 2003. "Stock options as barrier contingent claims," Applied Mathematical Finance, Taylor & Francis Journals, vol. 10(2), pages 121-147.
    6. Peña Sánchez de Rivera, Juan Ignacio & Forte, Santiago, 2003. "Debt refinancing and credit risk," DEE - Working Papers. Business Economics. WB wb031704, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    7. Duffie, Darrell & Singleton, Kenneth J, 1999. "Modeling Term Structures of Defaultable Bonds," Review of Financial Studies, Society for Financial Studies, vol. 12(4), pages 687-720.
    8. 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 637-654, May-June.
    9. Jan Ericsson & Joel Reneby, 1998. "A framework for valuing corporate securities," Applied Mathematical Finance, Taylor & Francis Journals, vol. 5(3-4), pages 143-163.
    10. Geske, Robert, 1979. "The valuation of compound options," Journal of Financial Economics, Elsevier, vol. 7(1), pages 63-81, March.
    11. Robert A. Jarrow & Stuart M. Turnbull, 2008. "Pricing Derivatives on Financial Securities Subject to Credit Risk," World Scientific Book Chapters,in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 17, pages 377-409 World Scientific Publishing Co. Pte. Ltd..
    12. Brockman, Paul & Turtle, H. J., 2003. "A barrier option framework for corporate security valuation," Journal of Financial Economics, Elsevier, vol. 67(3), pages 511-529, March.
    13. Young Ho Eom, 2004. "Structural Models of Corporate Bond Pricing: An Empirical Analysis," Review of Financial Studies, Society for Financial Studies, vol. 17(2), pages 499-544.
    14. Geske, Robert, 1977. "The Valuation of Corporate Liabilities as Compound Options," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(04), pages 541-552, November.
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    More about this item

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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