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Bank risk, financial stress, and bank derivative use

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  • Barbara A. Bliss
  • Jeffrey A. Clark
  • R. Jared DeLisle

Abstract

This paper distinguishes hedging from speculative derivative usage by U.S. bank holding companies (BHCs). This is accomplished by implementing a multi‐step procedure that relates the implied volatility from options on these banks, the broad components of the Cleveland Federal Reserve Bank Financial Stress Index, and off‐balance sheet derivatives. Our results indicate that BHCs with positive risk exposure to various financial stresses generally use interest rate, foreign exchange, equity, commodity, and credit derivatives to reduce their risk exposure to these financial stresses.

Suggested Citation

  • Barbara A. Bliss & Jeffrey A. Clark & R. Jared DeLisle, 2018. "Bank risk, financial stress, and bank derivative use," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(7), pages 804-821, July.
    • Handle: RePEc:wly:jfutmk:v:38:y:2018:i:7:p:804-821
    DOI: 10.1002/fut.21902
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