Review of Quantitative Finance and Accounting

, Volume 45, Issue 1, pp 111–135

Some characteristics of an equity security next-year impairment

  • Julien Azzaz
  • Stéphane Loisel
  • Pierre-E. Thérond
Original Research

DOI: 10.1007/s11156-014-0432-x

Cite this article as:
Azzaz, J., Loisel, S. & Thérond, PE. Rev Quant Finan Acc (2015) 45: 111. doi:10.1007/s11156-014-0432-x

Abstract

In this paper, we propose some characteristics of next-year impairments in a generic Black and Scholes framework, with one equity security, and under International Financial Reporting Standards (IFRS) rules. We derive expression for the probability of impairment event for an equity-security recognized in the available-for-sale category. Our decomposition of this event is also useful to retrieve barrier options valuation methods. From there, we obtain an explicit formula for the first moment of impairment value and its cumulative distribution function, as well as sensitivities. Numerical studies are carried out on concrete securities. We also study a mean-preserving one-criterion proxy used by some insurance practitioners for the next-year impairment losses and discuss its relevance. More generally, our study paves the way for applications of financial mathematics techniques to accounting issues related to impairments in the IFRS framework.

Keywords

Equity Impairment IFRS IAS 39 Available-for-sale (AFS) Rear-end up-and-out put option Barrier option 

Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  • Julien Azzaz
    • 1
  • Stéphane Loisel
    • 1
  • Pierre-E. Thérond
    • 1
    • 2
  1. 1.Institut de Science Financière et d’AssurancesUniversité de LyonLyonFrance
  2. 2.Galea & AssociésParisFrance

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