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

Bevilacqua, Mattia ORCID: 0000-0003-3856-2001, Tunaru, Radu and Vioto, Davide (2023) Options-based systemic risk, financial distress, and macroeconomic downturns. JOURNAL OF FINANCIAL MARKETS, 65. p. 100834.

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Abstract

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
Uncontrolled Keywords:	Systemic risk, Options prices, Financial distress, Macro-finance, Financial stability
Divisions:	Faculty of Humanities and Social Sciences > School of Management
Depositing User:	Symplectic Admin
Date Deposited:	25 May 2023 15:38
Last Modified:	26 Oct 2023 12:18
DOI:	10.1016/j.finmar.2023.100834
Open Access URL:	https://www.sciencedirect.com/science/article/pii/...
Related URLs:	Author Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3170694