Quantifying the recapitalization fund premium using option pricing techniques

Ciprian Necula and Alina-Nicoleta Radu

Economics Letters, 2012, vol. 114, issue 3, 249-251

Abstract: The purpose of the paper consists in developing a formula for quantifying the premium a bank is expected to pay for a fund that provides recapitalization in order to allow orderly failure if the bank is in financial distress. The main finding is that such a premium can be computed as the difference between the prices of two European put options.

Keywords: Banks; Resolution fund; European put option; Volatility (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:114:y:2012:i:3:p:249-251

DOI: 10.1016/j.econlet.2011.11.002

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