Options-based systemic risk, financial distress, and macroeconomic downturnsBevilacqua, 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
It is advisable to refer to the publisher's version if you intend to cite from this work. See Guidance on citing. To link to this item DOI: 10.1016/j.finmar.2023.100834 Abstract/SummaryWe 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.
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