Crash risk of the euro in the sovereign debt crisis of 2009-2010
AbstractThe 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.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Banking & Finance.
Volume (Year): 35 (2011)
Issue (Month): 11 (November)
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Web page: http://www.elsevier.com/locate/jbf
European sovereign debt crisis Currency options Credit default swaps Currency crash;
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