Options-based systemic risk, financial distress, and macroeconomic downturns

Bevilacqua, M., Tunaru, R. and Vioto, D. (2023) Options-based systemic risk, financial distress, and macroeconomic downturns. Journal of Financial Markets, 65. 100834. ISSN 1386-4181 doi: 10.1016/j.finmar.2023.100834

Abstract/Summary

We extract an option-implied measure for systemic risk, the Systemic Options Value-at-Risk (SOVaR), from put option prices that can capture the buildup stage of systemic risk in the financial sector earlier than the standard systemic risk measures (SRMs). Our measure exhibits more timely early warning signals of main events around the global financial crisis than the main SRMs. SOVaR shows significant predictive power for macroeconomic downturns as well as future recessions up to one year ahead. Our results are robust to various specifications, breakdowns of financial sectors, and controlling for other main risk measures proposed in the literature.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/118429
Identification Number/DOI	10.1016/j.finmar.2023.100834
Refereed	Yes
Divisions	Henley Business School > Finance and Accounting
Publisher	Elsevier
Download/View statistics	View download statistics for this item