A default risk is the risk that a person or an organization will fail to make a payment that they have promised. There are many models that help us to analyze credit risk, such as Default Probability, Loss Given Default, and Migration Risk. All these models are important for evaluating credit risk, but the most important factor is the Probability of Default that is mentioned in this paper. This paper uses the Black Scholes formula for European call option to find the probability default of a firm. How d2 in Black schools model became the probability default of a Merton model. Merton model is the structural model because it is using firm’s value to inform the probability of firms default and here we are going to show the relationship between Black Scholes European call option and the probability of default of a firm. The main aim of this paper is to describe the factor that affects the default probability default using Black Scholes model for European Call option by the help of some examples.
| Published in | Journal of Business and Economic Development (Volume 2, Issue 2) |
| DOI | 10.11648/j.jbed.20170202.15 |
| Page(s) | 99-106 |
| Creative Commons |
This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited. |
| Copyright |
Copyright © The Author(s), 2017. Published by Science Publishing Group |
Black Scholes Model, Merton Model, Probability Default, Probability Distance
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APA Style
Amir Ahmad Dar, N. Anuradha. (2017). Probability Default in Black Scholes Formula: A Qualitative Study. Journal of Business and Economic Development, 2(2), 99-106. https://doi.org/10.11648/j.jbed.20170202.15
ACS Style
Amir Ahmad Dar; N. Anuradha. Probability Default in Black Scholes Formula: A Qualitative Study. J. Bus. Econ. Dev. 2017, 2(2), 99-106. doi: 10.11648/j.jbed.20170202.15
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Download@article{10.11648/j.jbed.20170202.15,
author = {Amir Ahmad Dar and N. Anuradha},
title = {Probability Default in Black Scholes Formula: A Qualitative Study},
journal = {Journal of Business and Economic Development},
volume = {2},
number = {2},
pages = {99-106},
doi = {10.11648/j.jbed.20170202.15},
url = {https://doi.org/10.11648/j.jbed.20170202.15},
eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jbed.20170202.15},
abstract = {A default risk is the risk that a person or an organization will fail to make a payment that they have promised. There are many models that help us to analyze credit risk, such as Default Probability, Loss Given Default, and Migration Risk. All these models are important for evaluating credit risk, but the most important factor is the Probability of Default that is mentioned in this paper. This paper uses the Black Scholes formula for European call option to find the probability default of a firm. How d2 in Black schools model became the probability default of a Merton model. Merton model is the structural model because it is using firm’s value to inform the probability of firms default and here we are going to show the relationship between Black Scholes European call option and the probability of default of a firm. The main aim of this paper is to describe the factor that affects the default probability default using Black Scholes model for European Call option by the help of some examples.},
year = {2017}
}
TY - JOUR T1 - Probability Default in Black Scholes Formula: A Qualitative Study AU - Amir Ahmad Dar AU - N. Anuradha Y1 - 2017/01/24 PY - 2017 N1 - https://doi.org/10.11648/j.jbed.20170202.15 DO - 10.11648/j.jbed.20170202.15 T2 - Journal of Business and Economic Development JF - Journal of Business and Economic Development JO - Journal of Business and Economic Development SP - 99 EP - 106 PB - Science Publishing Group SN - 2637-3874 UR - https://doi.org/10.11648/j.jbed.20170202.15 AB - A default risk is the risk that a person or an organization will fail to make a payment that they have promised. There are many models that help us to analyze credit risk, such as Default Probability, Loss Given Default, and Migration Risk. All these models are important for evaluating credit risk, but the most important factor is the Probability of Default that is mentioned in this paper. This paper uses the Black Scholes formula for European call option to find the probability default of a firm. How d2 in Black schools model became the probability default of a Merton model. Merton model is the structural model because it is using firm’s value to inform the probability of firms default and here we are going to show the relationship between Black Scholes European call option and the probability of default of a firm. The main aim of this paper is to describe the factor that affects the default probability default using Black Scholes model for European Call option by the help of some examples. VL - 2 IS - 2 ER -
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