Economics at your fingertips  

Using Option Theory and Fundamentals to Assessing Default Risk of Listed Firms

George Papanastasopoulos

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper, we use option based measures of financial performance that utilize market information in a binary probit regression to examine their informational context and properties as distress indicators and to estimate default probabilities for listed firms. Then, we enrich them with fundamentals that utilize accounting information. The results suggest that by adding accounting information from financial statements to market information from equity prices we can improve both in sample fitting and out of sample predictability of defaults. Therefore, option theory does not generate sufficient statistics of the actual default frequency. Our main conclusion is that while market information can be extremely valuable, it is most useful when coupled with accounting information in assessing default risk of listed firms.

Keywords: option theory; fundamentals; default risk (search for similar items in EconPapers)
JEL-codes: G32 G33 M41 (search for similar items in EconPapers)
Date: 2005-10, Revised 2006-06
New Economics Papers: this item is included in nep-acc and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().

Page updated 2023-11-11
Handle: RePEc:pra:mprapa:453