An Option-Based Approach to Bank Vulnerabilities in Emerging Markets
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Summary:
We measure bank vulnerability in emerging markets using the distance-to-default, a risk-neutral indicator based on Merton's (1974) structural model of credit risk. The indicator is estimated using equity prices and balance-sheet data for 38 banks in 14 emerging market countries. Results show it can predict a bank's credit deterioration up to nine months in advance. The distance-to-default, hence, may prove useful for bank monitoring purposes.
Series:
Working Paper No. 2004/033
Subject:
Asset and liability management Asset valuation Banking Commercial banks Credit Emerging and frontier financial markets Financial institutions Financial markets Money Stocks
English
Publication Date:
February 1, 2004
ISBN/ISSN:
9781451845211/1018-5941
Stock No:
WPIEA0332004
Pages:
22
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