In this paper, we propose a novel approach on how to estimate systemic risk and identify its key determinants. For all US financial companies with publicly traded equity options, we extract their option-implied value-at-risks (VaRs) and measure the spillover effects between individual company...

We test for the presence of adverse selection among firms adopting the fair value option for liabilities (FVOL) embedded in SFAS 159 during the financial crisis. The FVOL is a controversial accounting choice because it allows firms to increase earnings when credit quality deteriorates. We find...

This paper explores the contagious propagation of jumps among international stock market indices by exploiting a rich panel of stock and options data. We propose a multivariate option pricing model designed to allow for, but not superimpose, time and space amplification of jumps in option...

We show that the slight possibility of a macroeconomic disaster of moderate magnitude can explain important features across credit, option, and equity markets. Our consumption-based equilibrium model captures the empirical level and volatility of credit spreads, generates a flexible credit term...

This paper presents a methodology to examine the multivariate tail dependence of the implied volatility of equity options as an early warning indicator of systemic risk within the financial sector. Using non-parametric methods of estimating changes in the dependence structure in response to...

The Financial Instability Hypothesis-FIH (Minsky, 1977) explains the endogenous creation of the business cycle by considering how the economic units contribute to the capital development, and the debt impact. The FIH is a powerful model to describe how financial markets become unstable, also in...

The aim of this paper is to present different views on Black-Scholes model. The Black-Scholes equation is one of the most significant equations in financial mathematics. It is commonly used to determine price of options. However its applications as well as modifications go far beyond this...