Oil Price Volatility and Option Implied Risk Connectedness in the Canadian Banking Sector

30 Pages Posted: 15 Apr 2024

See all articles by Liangyi Mu

Liangyi Mu

Queen's University Belfast; The University of Manchester

Yoichi Otsubo

Kobe University; The University of Manchester - Manchester Business School

Xiangjin Shen

Synovus Financial Corporation

Date Written: March 26, 2024

Abstract

This research explores risk connectedness in the Canadian banking sector from 2007 to 2022, employing diverse measures such as daily realized volatility, implied volatility from option prices, and tail risk assessed through volatility skew (SKEW). During crises, interconnectedness peaks at 81.3% in 2020, highlighting sector vulnerability. Surprisingly, WTI oil volatility exhibits limited influence during the 2014-16 oil price collapse episode. Tail risk connectedness, indicated by SKEW, reveals a moderate level (53.8%) of interconnectedness regarding extreme events.

Keywords: Option Implied Risk Connectedness, Spillover, Systemic Risk, Oil Price Volatility, Canada

JEL Classification: G01, G10, G21, Q40

Suggested Citation

Mu, Liangyi and Otsubo, Yoichi and Shen, Xiangjin, Oil Price Volatility and Option Implied Risk Connectedness in the Canadian Banking Sector (March 26, 2024). Available at SSRN: https://ssrn.com/abstract=4773177 or http://dx.doi.org/10.2139/ssrn.4773177

Liangyi Mu

Queen's University Belfast ( email )

Riddel Hall
185 Stranmillis Road
Belfast, BT9 5EE
United Kingdom
+44 2890975484 (Phone)

The University of Manchester ( email )

Oxford Road
Manchester, N/A M13 9PL
United Kingdom

Yoichi Otsubo (Contact Author)

Kobe University ( email )

2-1, Rokkodai-cho, Nada-ku
Kobe, 657-8501
Japan

The University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Xiangjin Shen

Synovus Financial Corporation ( email )

P.O. Box 120
Columbus, GA 31902
United States

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