11-1 Option Models: Chapter 11 Part F Employ option pricing methods to evaluate the option to default. Used by many of the largest banks to monitor credit risk. Theory developed by Bob Merton in 1974 Only implemented recently KMV Corporation markets this model quite widely.
Option Models: Chapter 11 Part F. Employ option pricing methods to evaluate the option to default. Used by many of the largest banks to monitor credit risk. Theory developed by Bob Merton in 1974 Only implemented recently KMV Corporation markets this model quite widely. Key Factors. - PowerPoint PPT Presentation
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11-1
Option Models: Chapter 11 Part F
Employ option pricing methods to evaluate the option to default.
Used by many of the largest banks to monitor credit risk.
Theory developed by Bob Merton in 1974 Only implemented recently KMV Corporation markets this model quite
widely.
11-2
Key Factors
Capital Structure How much equity “cushion” ? Equity at market value
Incorporates the market’s evaluation of many factors
Volatility of the business (Assets) High volatility increases chances that the equity