期货期权及其衍生品配套件（全34章）Ch22.pptVIP

* * Example A company’s equity is $3 million and the volatility of the equity is 80% The risk-free rate is 5%, the debt is $10 million and time to debt maturity is 1 year Solving the two equations yields V0=12.40 and sv=21.23% Options, Futures, and Other Derivatives, 7th International Edition, Copyright ? John C. Hull 2008 * Example continued The probability of default is N(-d2) or 12.7% The market value of the debt is 9.40 The present value of the promised payment is 9.51 The expected loss is about 1.2% The recovery rate is 91% Options, Futures, and Other Derivatives, 7th International Edition, Copyright ? John C. Hull 2008 * The Implementation of Merton’s Model Choose time horizon Calculate cumulative obligations to time horizon. This is termed by KMV the “default point”. We denote it by D Use Merton’s model to calculate a theoretical probability of default Use historical data or bond data to develop a one-to-one mapping of theoretical probability into either real-world or risk-neutral probability of default. Options, Futures, and Other Derivatives, 7th International Edition, Copyright ? John C. Hull 2008 * Credit Risk in Derivatives Transactions (504) Three cases Contract always an asset Contract always a liability Contract can be an asset or a liability Options, Futures, and Other Derivatives, 7th International Edition, Copyright ? John C. Hull 2008 * General Result Assume that default probability is independent of the value of the derivative Consider times t1, t2,…tn and default probability is qi at time ti. The value of the contract at time ti is fi and the recovery rate is R The loss from defaults at time ti is qi(1-R)E[max(fi,0)]. Defining ui=qi(1-R) and vi as the value of a derivative that provides a payoff of max(fi, 0) at time ti, the cost of defaults is Options, Futures, and Other Derivatives, 7th International Edition, Copyright ? John C. Hull 2008 * If Contract Is Always a Liability (equation 22.9) Options, Futures, a