The Enron Bankruptcy: When did the options market in Enron lose it’s smirk? |
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Authors: | Bruce Mizrach |
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Affiliation: | (1) Department of Economics, Rutgers University, 75 Hamilton Street, New Brunswick, NJ, 08901 |
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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. I thank Oded Palmon and an anonymous referee for helpful comments. JEL Classification G13 · G14 |
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Keywords: | Volatility smile Options Enron Bankruptcy |
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