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A Mathematical Approach of Determining Bank Risks Premium

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Operational Tools in the Management of Financial Risks

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Abstract

The theory of options allows to establish a system of specific risk premiums designed to insure a bank against bankruptcy on a logic and rational basis because basically, paying a premium transforms a risky deposit into a riskless investment.The basic mechanism is that the payment of a premium is equivalent to the purchase of a put on the assets of the bank. The impact of different parameters on the value of that put is analyzed : level of debts, value of the market of the bank, volatility, pay-out ratio of dividend distribution .

Conclusions related to the management of the firm are drawn from the different simulations.

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Bibliography

  1. Black F.Scholes M. “The pricing of options and corporate liabilities”, Journal of Political Economy, May-June 1973.

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Author information

Authors and Affiliations

  1. Département Finance, Groupe Ecole Supérieure de Commerce de Paris, 79 avenue de la république, 75011, Paris, France

    Jyoti Gupta & Philippe Spieser

Authors
  1. Jyoti Gupta
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  2. Philippe Spieser
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Editor information

Editors and Affiliations

  1. Dept. of Production Engineering and Management Decision Support Systems Laboratory, Technical University of Crete, University Campus, 73100, Chania, Greece

    Constantin Zopounidis

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© 1998 Springer Science+Business Media New York

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Gupta, J., Spieser, P. (1998). A Mathematical Approach of Determining Bank Risks Premium. In: Zopounidis, C. (eds) Operational Tools in the Management of Financial Risks. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-5495-0_10

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  • DOI: https://doi.org/10.1007/978-1-4615-5495-0_10

  • Publisher Name: Springer, Boston, MA

  • Print ISBN: 978-1-4613-7510-4

  • Online ISBN: 978-1-4615-5495-0

  • eBook Packages: Springer Book Archive

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