FT Alphaville says: Credit from equity. It’s not a new concept but haven’t yet seen it represented as neatly as in this graph.
True, new totally idiotic concept, comparing a credit spread to the price level of an equity index from Bank of America no less…
Whoever wrote this report should be fired on the spot.
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April 28th, 2008 at 11:12 am
In the Black-Scholes-Merton contingent claims analysis equity and credit spreads bonds are treated as long/short put options on the assets of the firm. Plotting a proxy for asset value (equity index levels) vs spreads (option values)? Yeah, what a ridiculous idea.
April 28th, 2008 at 12:14 pm
bh:
indeed plotting an asset value against a derivative is pretty ridiculous, it yields no information unless you find it surprising that “put” options go up when prices go down.