The Enron Bankruptcy: When did the options market in Enron lose it’s smirk?

The Enron Bankruptcy: When did the options market in Enron lose it’s smirk? The Enron Corporation went from a $65 billion dollar market capitalization to bankruptcy in just 16 months. Using statistical techniques for extracting the implied probability distributions built into option prices, I examine the market’s expectation of Enron’s risk of collapse. I find that the options market remained far too optimistic about the stock until just weeks before their bankruptcy filing. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

The Enron Bankruptcy: When did the options market in Enron lose it’s smirk?

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2006 by Springer Science + Business Media, LLC
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-006-0043-2
Publisher site
See Article on Publisher Site

Abstract

The Enron Corporation went from a $65 billion dollar market capitalization to bankruptcy in just 16 months. Using statistical techniques for extracting the implied probability distributions built into option prices, I examine the market’s expectation of Enron’s risk of collapse. I find that the options market remained far too optimistic about the stock until just weeks before their bankruptcy filing.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Jan 1, 2006

References

  • Nonparametric estimation of state-price densities implicit in financial asset prices
    Ait-Sahalia, Y; Lo, A
  • Empirical performance of alternative option pricing models
    Bakshi, C; Cao, C; Chen, Z
  • Inference in TAR models
    Hansen, B
  • Option pricing and the martingale restriction
    Longstaff, F
  • Option pricing when underlying stock returns are discontinuous
    Merton, R

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