The Study On Distress Warning For Commercial Banks, An Option-based Model And Fundamental Analysis

The commercial banks are core parts of modern financial system. The global financial crisis shows that, the implementation of the bank crisis warning is important for preventing the bank crisis and its spreading, maintaining economic and social stability, even avoiding financial crisis. It is a fundamental and necessary backup for this reason.Using an option-based approach, this paper constructs a distress warning model for Chinese listed commercial banks and analyzes the distress situations the banks with the samples from 2007 to 2010.This study of ideas from classic fundamental analysis method, namely the three-step process (Top-down analysis), through the influence of commercial bank macroscopical factors, the industry factor and the banks specific factors into consideration, in a system under the framework of the model to construct.This paper defines a new parameters-distance-to-distress, and involves he capital adequacy ratio. Also, considering the industry separation, the concept of industry risk factor is introduced. The study results show that China's 14 listed commercial banks all appear to be safe because of their positive values of distance-to-distress and the state-owned banks have the best distress situations. Second, the parameter, distance to distress, is more sensitive to interest rate than the distance to default.This study through the model building emphasizes the bank as a financial intermediary status, combined with an option pricing model and fundamental analysis of their advantages. Also, considering the industry division, through the introduction of industry risk coefficient and capital adequacy ratio index, the paper solved the existing model can't identify different samples, and its applicability regarding the industry.