Deriving the Term Structure of Banking Crisis Risk with a Compound Option Approach: The Case of Kazakhstan

48 Pages Posted: 8 Jun 2016

See all articles by Stefan Eichler

Stefan Eichler

Leibniz Universität Hannover; Halle Institute for Economic Research

Alexander Karmann

Technische Universitaet Dresden

Dominik Maltritz

Dresden University of Technology - Faculty of Economics and Business Management

Date Written: 2010

Abstract

We use a compound option-based structural credit risk model to infer a term structure of banking crisis risk from market data on bank stocks in daily frequency. Considering debt service payments with different maturities this term structure assigns a separate estimator for short- and long-term default risk to each maturity. Applying the Duan (1994) maximum likelihood approach, we find for Kazakhstan that the overall crisis probability was mainly driven by short-term risk, which increased from 25% in March 2007 to 80% in December 2008. Concurrently, the long-term default risk increased from 20% to only 25% during the same period.

Keywords: Banking crisis, bank default, option pricing theory, compound option, liability structure

JEL Classification: G21, G17, G32, G12, G18

Suggested Citation

Eichler, Stefan and Karmann, Alexander and Maltritz, Dominik, Deriving the Term Structure of Banking Crisis Risk with a Compound Option Approach: The Case of Kazakhstan (2010). Bundesbank Series 2 Discussion Paper No. 2010,01, Available at SSRN: https://ssrn.com/abstract=2794040

Stefan Eichler

Leibniz Universität Hannover

Institute of Money and International Finance
Koenigsworther Platz 1
Hannover, 30167
Germany

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

Alexander Karmann (Contact Author)

Technische Universitaet Dresden ( email )

Muenchner Platz 1- 3
Dresden, 01069
Germany

Dominik Maltritz

Dresden University of Technology - Faculty of Economics and Business Management ( email )

Mommsenstrasse 13
Dresden, D-01062
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
14
Abstract Views
291
PlumX Metrics