Crash risk of the euro in the sovereign debt crisis of 2009-2010

Cho-Hoi Hui and Tsz-Kin Chung

Journal of Banking & Finance, 2011, vol. 35, issue 11, 2945-2955

Abstract: 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.

Keywords: European; sovereign; debt; crisis; Currency; options; Credit; default; swaps; Currency; crash (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (50)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:35:y:2011:i:11:p:2945-2955

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