Liquidity, leverage, and lehman: A structural analysis of financial institutions in crisis

Ren Raw Chen; N. K. Chidambaran; Michael B. Imerman; Ben J. Sopranzetti

doi:10.1016/j.jbankfin.2014.04.018

Liquidity, leverage, and lehman: A structural analysis of financial institutions in crisis

Ren Raw Chen
, N. K. Chidambaran
, Michael B. Imerman
, Ben J. Sopranzetti^*

^*Corresponding author for this work

Fordham University
Lehigh University
Rutgers - The State University of New Jersey, New Brunswick

Research output: Contribution to journal › Journal Article › peer-review

23 Scopus citations

Abstract

This paper presents a flexible, lattice-based structural credit risk model that uses equity market information and a detailed depiction of a financial institution's liability structure to analyze default risk. The model is applied to examine the term structure of default probabilities for Lehman Brothers prior to its demise. The results indicate, as early as March, that the firm would likely lose access to external capital within two years. The model can be used as both a diagnostic tool for the early detection of financial distress and a prescriptive tool for addressing the sources of risk in large, complex financial institutions.

Original language	English
Pages (from-to)	117-139
Number of pages	23
Journal	Journal of Banking and Finance
Volume	45
Issue number	1
DOIs	https://doi.org/10.1016/j.jbankfin.2014.04.018
State	Published - 08 2014
Externally published	Yes

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 10 Reduced Inequalities

Keywords

Default probability
Financial crisis
Lehman brothers
Liquidity
Risk management
Structural credit risk models

Access to Document

10.1016/j.jbankfin.2014.04.018

Cite this

@article{7a1505729cca48e5af06d9e671be2270,

title = "Liquidity, leverage, and lehman: A structural analysis of financial institutions in crisis",

abstract = "This paper presents a flexible, lattice-based structural credit risk model that uses equity market information and a detailed depiction of a financial institution's liability structure to analyze default risk. The model is applied to examine the term structure of default probabilities for Lehman Brothers prior to its demise. The results indicate, as early as March, that the firm would likely lose access to external capital within two years. The model can be used as both a diagnostic tool for the early detection of financial distress and a prescriptive tool for addressing the sources of risk in large, complex financial institutions.",

keywords = "Default probability, Financial crisis, Lehman brothers, Liquidity, Risk management, Structural credit risk models",

author = "Chen, \{Ren Raw\} and Chidambaran, \{N. K.\} and Imerman, \{Michael B.\} and Sopranzetti, \{Ben J.\}",

year = "2014",

month = aug,

doi = "10.1016/j.jbankfin.2014.04.018",

language = "英语",

volume = "45",

pages = "117--139",

journal = "Journal of Banking and Finance",

issn = "0378-4266",

publisher = "Elsevier B.V.",

number = "1",

}

TY - JOUR

T1 - Liquidity, leverage, and lehman

T2 - A structural analysis of financial institutions in crisis

AU - Chen, Ren Raw

AU - Chidambaran, N. K.

AU - Imerman, Michael B.

AU - Sopranzetti, Ben J.

PY - 2014/8

Y1 - 2014/8

N2 - This paper presents a flexible, lattice-based structural credit risk model that uses equity market information and a detailed depiction of a financial institution's liability structure to analyze default risk. The model is applied to examine the term structure of default probabilities for Lehman Brothers prior to its demise. The results indicate, as early as March, that the firm would likely lose access to external capital within two years. The model can be used as both a diagnostic tool for the early detection of financial distress and a prescriptive tool for addressing the sources of risk in large, complex financial institutions.

AB - This paper presents a flexible, lattice-based structural credit risk model that uses equity market information and a detailed depiction of a financial institution's liability structure to analyze default risk. The model is applied to examine the term structure of default probabilities for Lehman Brothers prior to its demise. The results indicate, as early as March, that the firm would likely lose access to external capital within two years. The model can be used as both a diagnostic tool for the early detection of financial distress and a prescriptive tool for addressing the sources of risk in large, complex financial institutions.

KW - Default probability

KW - Financial crisis

KW - Lehman brothers

KW - Liquidity

KW - Risk management

KW - Structural credit risk models

UR - https://www.scopus.com/pages/publications/84903795723

U2 - 10.1016/j.jbankfin.2014.04.018

DO - 10.1016/j.jbankfin.2014.04.018

M3 - 文章

AN - SCOPUS:84903795723

SN - 0378-4266

VL - 45

SP - 117

EP - 139

JO - Journal of Banking and Finance

JF - Journal of Banking and Finance

IS - 1

ER -

Liquidity, leverage, and lehman: A structural analysis of financial institutions in crisis

Abstract

UN SDGs

Keywords

Access to Document

Other files and links

Fingerprint

Cite this