Systemic Risk in the Financial Sector: What Can We Learn from Option Markets?

SAFE Working Paper No. 25

47 Pages Posted: 16 Jul 2013 Last revised: 18 Jan 2015

See all articles by Holger Kraft

Holger Kraft

Goethe University Frankfurt

Alexander Schmidt

Deutsche Bundesbank

Multiple version iconThere are 2 versions of this paper

Date Written: December 14, 2014


We propose a novel approach on how to estimate systemic risk and identify its key determinants. For US financial companies with publicly traded equity options, we extract option-implied value-at-risks and measure the spillover effects between individual company value-at-risks and the option-implied value-at-risk of a financial index. First, we study the spillover effect of increasing company risks on the financial sector. Second, we analyze which companies are mostly affected if the tail risk of the financial sector increases. Key metrics such as size, leverage, market-to-book ratio and earnings have a significant influence on the systemic risk profiles of financial institutions.

Keywords: Systemic risk, Value-at-risk, Equity options, Implied volatility, Panel vector autoregression

JEL Classification: G01, G28, G32

Suggested Citation

Kraft, Holger and Schmidt, Alexander, Systemic Risk in the Financial Sector: What Can We Learn from Option Markets? (December 14, 2014). SAFE Working Paper No. 25, Available at SSRN: or

Holger Kraft (Contact Author)

Goethe University Frankfurt ( email )

Faculty of Economics and Business
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323

Alexander Schmidt

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
PlumX Metrics