Systemic risk analysis using forward-looking distance-to-default series

Martin Saldias

No 1005, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: Based on contingent claims theory, this paper develops a method to monitor systemic risk in the European banking system. Aggregated Distance-to-Default series are generated using option prices information from systemically important banks and the DJ STOXX Banks Index. These indicators provide methodological advantages in monitoring vulnerabilities in the banking system over time: 1) they capture interdependences and joint risk of distress in systemically important banks; 2) their forward-looking feature endow them with early signaling properties compared to traditional approaches in the literature and other market-based indicators; and 3) they produce simultaneously both smooth and informative long-term signals and quick and clear reaction to market distress.

Keywords: Systemic risk; Banks and banking - Europe (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-rmg
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://doi.org/10.26509/frbc-wp-201005 Persistent Link (text/html)
https://www.clevelandfed.org/-/media/project/cleve ... fault-series-pdf.pdf Full Text (application/pdf)

Related works:
Journal Article: Systemic risk analysis using forward-looking Distance-to-Default series (2013)
Working Paper: Systemic Risk Analysis using Forward-Looking Distance-to-Default Series (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedcwp:1005

Ordering information: This working paper can be ordered from

DOI: 10.26509/frbc-wp-201005

Access Statistics for this paper

More papers in Working Papers (Old Series) from Federal Reserve Bank of Cleveland Contact information at EDIRC.
Bibliographic data for series maintained by 4D Library ().