Crash risk of the euro in the sovereign debt crisis of 2009-2010
The economic-political instability of a country, which is tied to its credit risk, often leads to sharp depreciation and heightened volatility in its currency. This paper shows that not only the creditworthiness of the euro-area countries with weaker fiscal positions but also that of the member countries with more sound fiscal positions are important determinants of the deep out-of-the-money euro put option prices, which embedded information on the euro crash risk during the sovereign debt crisis of 2009-2010. We also find evidence of information flow from the sovereign credit default swap market to the currency option market during the crisis.
Year of publication: |
2011
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Authors: | Hui, Cho-Hoi ; Chung, Tsz-Kin |
Published in: |
Journal of Banking & Finance. - Elsevier, ISSN 0378-4266. - Vol. 35.2011, 11, p. 2945-2955
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Publisher: |
Elsevier |
Keywords: | European sovereign debt crisis Currency options Credit default swaps Currency crash |
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