The Research on Distress Warning for Chinese Listed Commercial Banks: An Option-Based Approach

Using an option-based approach, this paper constructs a distress warning model for Chinese commercial banks and analyzes the distress situations of China´s 14 listed commercial banks with the samples in 2008. According to the empirical results, we obtain two valuable conclusions that the option-based approach is valid in distress warning of Chinese banking and the distance-to-distress is more sensitive to the interest rate than to the distress barrier. The study results also 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.