Abstract
In this study, we propose an implied forward-looking measure for systemic risk that employs the information from put option prices, the Systemic Options Value-at-Risk (SOVaR). This new measure can capture the buildup stage of systemic risk in the financial sector earlier than the standard stock market-based systemic risk measures (SRMs). Non-parametric tests show that our measure exhibits more timely early warning signals (up to one month earlier) regarding the main turbulent events around the global financial crisis of 2007-2009 than the three main stock market-based SRMs. Moreover, this new measure also shows significant predictive power with respect to macroeconomic downturns as well as future recessions. Our results are robust to various specifications, breakdowns of financial sectors, and controlling for the other main risk measures proposed in the literature.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
