Market Pricing of Deposit Insurance
Posted: 17 Feb 2004
Abstract
We provide an approach to the market valuation of deposit insurance that is based on reduced-form methods for the pricing of fixed-income securities under default risk. By reference to bank debt prices as well as qualitative-response models of the probability of bank failure, we suggest how a risk-neutral valuation model for deposit insurance can be applied both to the calculation of fair-market deposit insurance premia and to the valuation of long-term claims against the insurer.
Keywords: Deposit insurance pricing, risk-neutral default probability, bank failure
Suggested Citation: Suggested Citation
Duffie, James Darrell and Jarrow, Robert A. and Purnanandam, Amiyatosh, Market Pricing of Deposit Insurance. Available at SSRN: https://ssrn.com/abstract=502565
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