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The Enron Bankruptcy: When did the options market in Enron lose it’s smirk?

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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.

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Authors and Affiliations

  1. Department of Economics, Rutgers University, 75 Hamilton Street, New Brunswick, NJ, 08901

    Bruce Mizrach

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  1. Bruce Mizrach
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Additional information

I thank Oded Palmon and an anonymous referee for helpful comments.

JEL Classification G13 · G14

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Mizrach, B. The Enron Bankruptcy: When did the options market in Enron lose it’s smirk?. Rev Quant Finan Acc 27, 365–382 (2006). https://doi.org/10.1007/s11156-006-0043-2

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  • DOI: https://doi.org/10.1007/s11156-006-0043-2

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