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Article in Journal ()

Alternative bankruptcy prediction models using option-pricing theory

Citation
Charitou A, Dionysiou D, Lambertides N & Trigeorgis L (2013) Alternative bankruptcy prediction models using option-pricing theory, Journal of Banking and Finance, 37 (7), pp. 2329-2341.

Abstract
We examine the empirical properties of the theoretical Black-Scholes-Merton (BSM) bankruptcy model. We evaluate the predictive ability of various existing modifications of the BSM model and extend prior studies by estimating volatility directly from market-observable returns on firm value. We show that parsimonious models using our direct market-observable volatility estimate perform better than alternative, more sophisticated, models. Our findings suggest the adoption of simpler modelling approaches relying on market data when implementing the BSM model.

Keywords
Bankruptcy prediction; Option-pricing theory; Volatility estimation

StatusPublished
AuthorsCharitou Andreas, Dionysiou Dionysia, Lambertides Neophytos, Trigeorgis Lenos
Publication date07/2013
PublisherElsevier
ISSN 0378-4266
LanguageEnglish

Journal
Journal of Banking and Finance: Volume 37, Issue 7 (2013)

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