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2012 | nr 36 | 86--105
Tytuł artykułu

Application of Call-Put Parity for modeling the value of implicit put options, granted to shareholders of "too big to fail" financial institutions at taxpayers' expense

Warianty tytułu
Języki publikacji
EN
Abstrakty
EN
The article outlines the issue of moral hazard related to implicit state guarantees for so-called "too big to fail" financial institutions in the context of Call-Put Parity. Shareholders of the involved entities and state decision makers are presented as counterparts of an implicit put option contract. By modifying the original parity equation, a formula is developed for quantifying the value to investors of a state bailout pledge. An empirical example is presented, based on data concerning the 2008 rescue of American International Group. The study finds that pledges of state support do not always yield value for equity holders. Furthermore, the price of the put option may become subject to significant variation over time. Finally, in the case of AIG, the underlying implicit contract significantly gained in value prior to disclosure of the company's distress. (original abstract)
Rocznik
Numer
Strony
86--105
Opis fizyczny
Twórcy
Bibliografia
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Typ dokumentu
Bibliografia
Identyfikatory
Identyfikator YADDA
bwmeta1.element.ekon-element-000171240741

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