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

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  • Hui, Cho-Hoi
  • Chung, Tsz-Kin

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.

Suggested Citation

  • Hui, Cho-Hoi & Chung, Tsz-Kin, 2011. "Crash risk of the euro in the sovereign debt crisis of 2009-2010," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 2945-2955, November.
    • Handle: RePEc:eee:jbfina:v:35:y:2011:i:11:p:2945-2955
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    References listed on IDEAS

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