Market Pricing of Deposit Insurance

Posted: 17 Feb 2004

See all articles by Darrell Duffie

Darrell Duffie

Stanford University - Graduate School of Business; National Bureau of Economic Research (NBER)

Robert A. Jarrow

Cornell University - Samuel Curtis Johnson Graduate School of Management

Amiyatosh Purnanandam

University of Michigan, Stephen M. Ross School of Business

Abstract

We provide an approach to the market valuation of deposit insurance that is based on reduced-form methods for the pricing of fixed-income securities under default risk. By reference to bank debt prices as well as qualitative-response models of the probability of bank failure, we suggest how a risk-neutral valuation model for deposit insurance can be applied both to the calculation of fair-market deposit insurance premia and to the valuation of long-term claims against the insurer.

Keywords: Deposit insurance pricing, risk-neutral default probability, bank failure

Suggested Citation

Duffie, James Darrell and Jarrow, Robert A. and Purnanandam, Amiyatosh, Market Pricing of Deposit Insurance. Available at SSRN: https://ssrn.com/abstract=502565

James Darrell Duffie (Contact Author)

Stanford University - Graduate School of Business ( email )

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National Bureau of Economic Research (NBER)

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Robert A. Jarrow

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Department of Finance
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United States
607-255-4729 (Phone)
607-254-4590 (Fax)

Amiyatosh Purnanandam

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

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