An Option-Based Approach to Bank Vulnerabilities in Emerging Markets
February 1, 2004
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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.
Subject: Asset and liability management, Asset valuation, Banking, Commercial banks, Credit, Emerging and frontier financial markets, Financial institutions, Financial markets, Money, Stocks
Keywords: annual balance sheet data, Asset valuation, asset volatility, Banco de Bogota, bank, bank distress, bank vulnerability, banks, banks Used, Commercial banks, Credit, Distance-to-default, distress event, downgraded bank, East Asia, Emerging and frontier financial markets, emerging markets, Stocks, WP
Pages:
22
Volume:
2004
DOI:
Issue:
033
Series:
Working Paper No. 2004/033
Stock No:
WPIEA0332004
ISBN:
9781451845211
ISSN:
1018-5941
