Template-Type: ReDIF-Paper 1.0

Author-Name: Philipp Matros
Author-X-Name-First: Philipp 
Author-X-Name-Last: Matros

Author-Name: Johannes Vilsmeier
Author-X-Name-First: Johannes 
Author-X-Name-Last: Vilsmeier

Title: Measuring Option Implied Degree of Distress in the US Financial Sector Using the Entropy Principle
	
Abstract: We estimate time series of option implied Probabilities of Default (PoDs) for 19 major US
financial institutions from 2002 to 2012. These PoDs are estimated as mass points of entropy
based risk neutral densities and subsequently corrected for maturity dependence. The ob-
tained time series are evaluated with regard to their consistency and predictive power and
their properties are compared to Credit Default Swap Spreads (CDS). Moreover, we also
derive an indicator for the systemic risk in the US nancial sector. We find that the PoDs
are superior to CDS in identifying the high risk banks prior to the Lehman crisis.

Length:  46 pages
Creation-Date:  2012-08
File-URL: http://www.bgpe.de/texte/DP/123_MatrosVilsmeier.pdf
File-Format: Application/pdf
File-Function: First version, 2012
Number: 123
Classification-JEL: C14, C32, G01, G21
Keywords: Entropy Principle, Risk Neutral Density, Probability of Default, Financial Stability Indicator, Credit Default Swaps
Handle: RePEc:bav:wpaper:123_MatrosVilsmeier