Valuation of Bank Deposit Insurance with Counterparty Default Risk

  • 林 嘉沅

Student thesis: Master's Thesis

Abstract

This thesis focuses on the optimal value of European vulnerable put option on the fair premium of deposit insurance In particular it considers the other liabilities in the capital structure of the option writer and if the proportion of other liabilities of the option writer is larger than the value of the option if financial distress occurs In order to price the model of vulnerable put options this study uses a three-dimensional binomial tree log transformation and first-order Taylor series approximation to construct an appropriate formula This thesis uses data from the annual reports of the CDIC and the financial institutions in Taiwan for the period 2010-2015 The results show that the other liabilities of the Federal Deposit Insurance Corporation (FDIC) have a significant effect on the deposit insurance premiums and thus support the view that the options and other liabilities which should be considered in the capital structure of the FDIC when calculating the deposit insurance premium
Date of Award2016 Aug 12
Original languageEnglish
SupervisorYu-Hong Liu (Supervisor)

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