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Appears in Collections:Accounting and Finance Journal Articles
Peer Review Status: Refereed
Title: Alternative bankruptcy prediction models using option-pricing theory
Author(s): Charitou, Andreas
Dionysiou, Dionysia
Lambertides, Neophytos
Trigeorgis, Lenos
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Keywords: Bankruptcy prediction
Option-pricing theory
Volatility estimation
Issue Date: Jul-2013
Date Deposited: 12-May-2014
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.
DOI Link: 10.1016/j.jbankfin.2013.01.020
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