Download or read book Systemic Risk Analysis Using Forward-Looking Distance-to-Default Series written by Martin Saldias and published by . This book was released on 2014 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: Based on Contingent Claims Analysis, 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 STOXX Europe 600 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; 3) they produce simultaneously smooth and informative long-term signals and quick and clear reaction to market distress and 4) they incorporate additional information through option prices about tail risk and correlation breaks, in line with recent findings in the literature.