Extreme events in financial markets can arise from fundamental information, but they can also arise from latent hazards embedded in the market design. This is systemic risk and somebody bears this risk. These events add to risk and their probability and severity must be accounted for by market...

This paper investigates the factors that drove the U.S. equity market returns from 2007 through early 2010. The period was highlighted by volatile energy and commodity prices, the collapse of insurance and banking firms, extreme implied volatility and a subsequent rally in the overall market. To...