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

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

    (Universitat de Barcelona)

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    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).

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    Paper provided by Universitat de Barcelona. Espai de Recerca en Economia in its series Working Papers in Economics with number 156.

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    Length: 35 pages
    Date of creation: 2006
    Date of revision:
    Handle: RePEc:bar:bedcje:2006156
    Contact details of provider: Postal: Espai de Recerca en Economia, Facultat de Ciències Econòmiques. Tinent Coronel Valenzuela, Num 1-11 08034 Barcelona. Spain.
    Web page: http://www.ere.ub.es
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    1. Ericsson, Jan & Reneby, Joel, 1996. "Stock Options as Barrier Contingent Claims," SSE/EFI Working Paper Series in Economics and Finance 137, Stockholm School of Economics, revised 01 Feb 2002.
    2. Jan Ericsson & Joel Reneby, 1998. "A framework for valuing corporate securities," Applied Mathematical Finance, Taylor & Francis Journals, vol. 5(3-4), pages 143-163.
    3. 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.
    4. 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.
    5. Santiago Forte & J. Ignacio Peña, 2003. "Debt Refinancing And Credit Risk," Business Economics Working Papers wb031704, Universidad Carlos III, Departamento de Economía de la Empresa.
    6. Merton, Robert C., 1973. "On the pricing of corporate debt: the risk structure of interest rates," Working papers 684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    7. Jarrow, Robert A & Turnbull, Stuart M, 1995. " Pricing Derivatives on Financial Securities Subject to Credit Risk," Journal of Finance, American Finance Association, vol. 50(1), pages 53-85, March.
    8. 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.
    9. Geske, Robert, 1979. "The valuation of compound options," Journal of Financial Economics, Elsevier, vol. 7(1), pages 63-81, March.
    10. 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 351-67, May.
    11. Robert A. Jarrow, 2009. "Credit Risk Models," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 37-68, November.
    12. 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.
    13. 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.
    14. 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.
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