What volatility smiles tell us about Too Big to Fail Problem
UNIVERSITY OF TECHNOLOGY SYDNEY
Research Seminars in Finance
Topic: What can volatility smiles tell us about the Too Big to Fail problem?
Speaker: Diego Puente Moncayo, ANU
Abstract: This paper exploits the information content of option markets to offer insight into the too-Big-to-Fail (TBTF) problem for banks. Using option prices, I construct a forward- looking measure of bank exposure to significant price drops (i.e. tail-risk) and use this to examine cross-sectional differences between large banks (with at least $50B in as- sets) and smaller banks. I document a permanent increase in the average tail-risk of the U.S. banking industry following the Global Financial Crisis, except for banks above the $50B size threshold (systemically important financial institutions (SIFIs)). I provide evidence that the post-crisis difference in tail-risk for banks above and below the $50B threshold owes to the TBTF status of SIFIs that was reinforced by the Dodd-Frank Act.
Date: Thursday, 14 November 2019
Time: 12.00 – 1.00 p.m.
Venue: University of Technology, Sydney
Building 8, Room 05.006, Dr Chau Chak Wing Building
Dr Chau Chak Wing Building
14 - 28 Ultimo Road, Ultimo
Co-ordinator: Claire Liu (Ph: +61 2 9514 7748)
Enquiries: Mala Kapahi (Ph: +61 2 9514 7777)