A Simple Robust Link Between American Puts and Credit Protection

• 成果类型: Article
• 署名作者: Carr, Peter; Wu, Liuren
• 署名单位: City University of New York (CUNY) System; Baruch College (CUNY); New York University
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhq129
• 发表日期: 2011
• 页码: 473
• 关键词: default risk; corporate-debt; term structure; valuation; SPREAD; determinants; jump; premium; options; MODEL

摘要

We develop a simple robust link between deep out-of-the-money American put options on a company's stock and a credit insurance contract on the company's bond. We assume that the stock price stays above a barrier B before default but drops below a lower barrier A after default, thus generating a default corridor [A, B] that the stock price can never enter. Given the presence of this default corridor, a spread between two co-terminal American put options struck within the corridor replicates a pure credit contract, paying off when and only when default occurs prior to the option expiry. (JEL C13, C51, G12, G13)