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Importance of the Contingent Claims Analysis in Detecting Banking Risks: Evidence from the Greek Bank Crisis

Author

Listed:
  • Constantinos Kyriakopoulos

    (Department of Mathematics, National and Kapodistrian University of Athens, Greece)

  • Alexandros Koulis

    (Department of Regional Development, Ionian University, Corfu, Greece)

  • Gerasimos Varvounis

    (Business Mathematics, Interdisciplinary Postgraduate Program, National and Kapodistrian University of Athens, Greece)

Abstract

In this paper we apply the Contingent Claims Analysis (CCA) to the banking sector in Greece with a particular focus on the years of the Greek debt crisis. Greece was selected primarily because its banking sector was hit hard due to the country’s government debt default and its large exposure to domestic loans. The results obtained on the SIB’s level and on the banking sector level gave us particular insight into the benefits of CCA for micro- and macroprudential policy reasons. The Distance-to-Distress (DtD) risk metric produced is particularly useful for detecting banks’ vulnerabilities and resilience before they are revealed in the market. Moreover, the reduced volatility of DtD time series makes it an ideal candidate for tool predictions purposes and ultimately for policy reasons.

Suggested Citation

  • Constantinos Kyriakopoulos & Alexandros Koulis & Gerasimos Varvounis, 2023. "Importance of the Contingent Claims Analysis in Detecting Banking Risks: Evidence from the Greek Bank Crisis," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 12(2), pages 63-82.
    • Handle: RePEc:cbk:journl:v:12:y:2023:i:2:p:63-82
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    More about this item

    Keywords

    Distance-to-Distress; banking risks; Contingent Claims Analysis; Greek crisis.;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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