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Tattle-tails: Gauging downside risks using option prices

Author

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  • Greg Adams
  • Maksym Tupis

Abstract

Options markets offer unique insights into the changing risks different assets face, which helps us better understand the broader risks to the Canadian economy. We show how option prices help reveal that investors did not anticipate large downside risks to either major Canadian banks or economic growth during the March 2023 financial sector system stress, a period when policy-makers and investors were unsure of what the future held for Canada’s economy.

Suggested Citation

  • Greg Adams & Maksym Tupis, 2023. "Tattle-tails: Gauging downside risks using option prices," Staff Analytical Notes 2023-13, Bank of Canada.
    • Handle: RePEc:bca:bocsan:23-13
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    File URL: https://www.bankofcanada.ca/2023/09/staff-analytical-note-2023-13/
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    More about this item

    Keywords

    Financial markets; Monetary policy and uncertainty; Recent economic and financial developments;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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