Buying Put Options to Insure Against Bankruptcy

The Journal of Financial Engineering, Vol. 6, No. 4, December 1997

Posted: 19 May 1998

See all articles by Austin Murphy

Austin Murphy

Oakland University - School of Business Administration

Abstract

This research shows how firms can issue put options on their own stock to insure against bankruptcy. The analysis demonstrates that equity put options are far cheaper than alternative methods of reducing the chance of bankruptcy. Potential agency problems associated with such puts are discussed and addressed.

JEL Classification: G13, G33

Suggested Citation

Murphy, J. Austin, Buying Put Options to Insure Against Bankruptcy. The Journal of Financial Engineering, Vol. 6, No. 4, December 1997. Available at SSRN: https://ssrn.com/abstract=90148

J. Austin Murphy (Contact Author)

Oakland University - School of Business Administration ( email )

Varner Hall - Room 502
Rochester, MI 48309-4401
United States
248-370-2125 (Phone)
248-370-4275 (Fax)

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