Abstract

https://ssrn.com/abstract=248709
 
 

References (29)



 
 

Citations (6)



 


 



Option-Based Bankruptcy Prediction


Andreas Charitou


University of Cyprus

Lenos Trigeorgis


University of Cyprus - Department of Public and Business Administration; Columbia University - Columbia Business School

June 2000

EFMA 2000 Athens

Abstract:     
This study builds on option-pricing theory to explain business bankruptcy based on a sample of 139 matched pairs of bankrupt and control U.S. firms for the period 1983-94. Our results indicate that the primary option-motivated variables, such as firm volatility, play an important role in predicting default, one, two and three years prior to bankruptcy. When the model is extended to account for the probability of default on interest payments due at intermediate times prior to debt maturity (either due to voluntary equityholder default or due to cash flow problems), related profitability and cash-flow/liquidity variables are shown to have incremental predictive power, while the primary option variables remain statistically significant. Our theory-driven model has significant explanatory power and prediction ability in all years tested.

Number of Pages in PDF File: 27

Keywords: Option pricing, bankruptcy


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Date posted: February 12, 2001  

Suggested Citation

Charitou, Andreas and Trigeorgis, Lenos, Option-Based Bankruptcy Prediction (June 2000). EFMA 2000 Athens. Available at SSRN: https://ssrn.com/abstract=248709 or http://dx.doi.org/10.2139/ssrn.248709

Contact Information

Andreas Charitou (Contact Author)
University of Cyprus ( email )
75 Kallipoleos Street
P.O. Box 20537
Nicosia CY-1678
Cyprus
+357 2 893624 (Phone)
+357 2 895030 (Fax)
Lenos Trigeorgis
University of Cyprus - Department of Public and Business Administration ( email )
75 Kallipoleos Street
P.O. Box 20537
Nicosia CY-1678
Cyprus
00357 2 338762 (Phone)
00357 2 339063 (Fax)
Columbia University - Columbia Business School ( email )
3022 Broadway
New York, NY 10027
United States

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