Replication data for: Too-Systemic-to-Fail: What Option Markets Imply about Sector-Wide Government Guarantees
Principal Investigator(s): View help for Principal Investigator(s) Bryan Kelly; Hanno Lustig; Stijn Van Nieuwerburgh
Version: View help for Version V1
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Project Citation:
Kelly, Bryan, Lustig, Hanno, and Van Nieuwerburgh, Stijn. Replication data for: Too-Systemic-to-Fail: What Option Markets Imply about Sector-Wide Government Guarantees. Nashville, TN: American Economic Association [publisher], 2016. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2019-10-11. https://doi.org/10.3886/E112874V1
Project Description
Summary:
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We examine the pricing of financial crash insurance during the 2007-2009 financial crisis in US option markets, and we show that a large amount of aggregate tail risk is missing from the cost of financial sector crash insurance during the crisis. The difference in costs between out-of-the-money put options for individual banks and puts on the financial sector index increases four-fold from its precrisis 2003-2007 level. We provide evidence that a collective government guarantee for the financial sector lowers index put prices far more than those of individual banks and explains the increase in the basket-index put spread.
Scope of Project
JEL Classification:
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E44 Financial Markets and the Macroeconomy
G01 Financial Crises
G13 Contingent Pricing; Futures Pricing; option pricing
G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
G28 Financial Institutions and Services: Government Policy and Regulation
H81 Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
E44 Financial Markets and the Macroeconomy
G01 Financial Crises
G13 Contingent Pricing; Futures Pricing; option pricing
G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
G28 Financial Institutions and Services: Government Policy and Regulation
H81 Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
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