TITLE

Prediction of default risk: An options-based approach applied to the Brazilian banking sector

AUTHOR(S)
Takami, Marcelo Y.; Tabak, Benjamin M.
PUB. DATE
March 2011
SOURCE
Journal of Banking Regulation;Mar2011, Vol. 12 Issue 2, p167
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
This article proposes a methodological framework to construct an early warning system for the Banking sector. It employs an options-based methodology to estimate default risk for six major Brazilian banks and shows that these measures have informational content. In addition, the options-based indicator is compared with market-based financial fragility indicators. Results show that these indicators are useful for risk managers and regulators, especially during crisis. Furthermore, option-based methods are preferable to classify banks. Finally, there is some evidence of lack of market discipline in the early 1990s.
ACCESSION #
59837183

 

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