Towards a Systemic Risk Indicator Based on Contingent Claim Analysis

Abstract

Traditionally, the literature in systemic risk focuses on financial institutions and on their relations. The financial crisis that began in the United States in 2007 and, particularly, the subsequent European sovereign debt crisis have shown that there are many more channels of contagion apart from the ones that link risks within the banking system. As these channels propagate shocks, understanding them better can help to defect the mechanics behind systemic risk. This type of analysis is, nevertheless, confronted with several data gaps and limitations, which flow-of-funds statistics tries to overcome.