Evaluation of conducting capital structure arbitrage using the multi-period extended Geske–Johnson model

Autor:	Ren-Raw Chen, Shih-Kuo Yeh, Hann-Shing Ju, Tung-Hsiao Yang
Rok vydání:	2013
Předmět:	Credit default swap Capital structure Financial economics General Business Management and Accounting Compound option iTraxx Accounting Econometrics Arbitrage pricing theory Economics Arbitrage Risk arbitrage Finance Index arbitrage
Zdroj:	Review of Quantitative Finance and Accounting. 44:89-111
ISSN:	1573-7179 0924-865X
DOI:	10.1007/s11156-013-0400-x
Popis:	This study utilizes a multi-period structural model developed by Chen and Yeh (Pricing credit default swaps with the extended Geske–Johnson Model. Working paper, 2006), which extends the Geske and Johnson (J Financ Quant Anal 19:231–232, 1984) compound option model to evaluate the performance of capital structure arbitrage. In the paper, first of all, we predict the default probability for each firm using the multi-period Geske–Johnson model that assumes endogenous default barriers. Second, based on the arbitrage performance of 369 North American obligators from 2004 to 2008, we find that the extended Geske–Johnson model is more suitable than the CreditGrades model for exploiting the mispricing between equity prices and credit default swap spreads. Finally, the Geske–Johnson model also performs well in extreme market condition, such as the financial crisis around 2008.
Databáze:	OpenAIRE
Externí odkaz:	https://explore.openaire.eu/search/publication?articleId=doi_________::884cbd71d9d9506aee46bfdbaae3f774 https://doi.org/10.1007/s11156-013-0400-x Zobrazit plný text záznamu Full text from SpringerLink