IMF Working Papers

The Option-iPoD

By Christian Capuano

August 1, 2008

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Christian Capuano. The Option-iPoD, (USA: International Monetary Fund, 2008) accessed October 6, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We present a framework to derive the probability of default implied by the price of equity options. The framework does not require any strong statistical assumption, and provide results that are informative on the expected developments of balance sheet variables, such as assets, equity and leverage, and on the Greek letters (delta, gamma and vega). We show how to extend the framework by using information from the price of a zero-coupon bond and CDS-spreads. In the episode of the collapse of Bear Stearns, option-iPoD was able to early signal market sentiment.

Subject: Asset prices, Asset valuation, Financial statements, Options, Stocks

Keywords: WP, Zero-coupon bond

Publication Details

  • Pages:

    29

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2008/194

  • Stock No:

    WPIEA2008194

  • ISBN:

    9781451870527

  • ISSN:

    1018-5941

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