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Applying default probabilities in an exponential barrier structural model

Author

Listed:
  • Arianna Agosto

    (Prometeia spa,Via G. Marconi 43, Bologna, Italy)

  • Enrico Moretto

    (Department of Economics, University of Insubria, Italy)

Abstract
This paper shows that the use of a time-dependant barrier in a structural model improve its flexibility because it allows to incorporate, as input, the probability of default. The main result achieved is the assessment that the default barrier is, indeed,characterized by a non flat structure. JEL Classification: G13, G33

Suggested Citation

  • Arianna Agosto & Enrico Moretto, 2010. "Applying default probabilities in an exponential barrier structural model," Economics and Quantitative Methods qf1005, Department of Economics, University of Insubria.
    • Handle: RePEc:ins:quaeco:qf1005
    as

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    File URL: https://www.eco.uninsubria.it/RePEc/pdf/QF2010_5.pdf
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    References listed on IDEAS

    as
    1. Reisz, Alexander S. & Perlich, Claudia, 2007. "A market-based framework for bankruptcy prediction," Journal of Financial Stability, Elsevier, vol. 3(2), pages 85-131, July.
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    5. Mark Broadie & Özgür Kaya, 2006. "Exact Simulation of Stochastic Volatility and Other Affine Jump Diffusion Processes," Operations Research, INFORMS, vol. 54(2), pages 217-231, April.
    6. Sreedhar T. Bharath & Tyler Shumway, 2008. "Forecasting Default with the Merton Distance to Default Model," The Review of Financial Studies, Society for Financial Studies, vol. 21(3), pages 1339-1369, May.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    default structural models; barrier options with exponential boundaries; implied default probability;
    All these keywords.

    JEL classification:

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

    NEP fields

    This paper has been announced in the following NEP Reports:

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