Journal Article

Market indicators, bank fragility, and indirect market discipline


Abstract: As a theoretical matter, signals from the bond and equity markets satisfy minimal requirements for a useful indicator. Using option pricing formulas, it is shown that a distance to default measure, based on equity market value and equity volatility, increases with the market value of bank assets and decreases with bank leverage and equity volatility.

Access Documents

Authors

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Economic Policy Review

Publication Date: 2004

Issue: Sep

Pages: 53-62

Order Number: v.10 no.2