Kenc, T.Çevik, Emrah İsmail2022-05-112022-05-1120210924-865Xhttps://doi.org/10.1007/s11156-021-00981-6https://hdl.handle.net/20.500.11776/4774Default risk increases substantially during financial stress times due to mainly the two reasons: volatility clustering and investors’ desire to protect themselves from such increases in volatility. It manifested in the aftermath of the Global Financial Crisis of 2008–2009 with unpleasant outcomes of many bankruptcies and severe financial distress. To account for these features, we adapted the structural credit risk approach to include both time-varying (return) volatility and risk premium about the return volatility itself. By applying the model to US banks, we obtain better bank default indicators in comparison to the benchmark models. © 2021, The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature.en10.1007/s11156-021-00981-6info:eu-repo/semantics/openAccessBankingDefault riskGARCH option pricingStructural credit riskVariance risk premiumsArticle57413731392N/AWOS:0006447353000012-s2.0-85105410028Q2