Date and Time
October 24, 2012
12:00 PM - 1:30 PM

Availability
Open to the public
RSVP required by 5PM October 22

Speaker
Hanno Lustig - Associate Professor of Finance at UCLA Anderson School of Management and Visiting Associate Professor at UC Berkeley Haas School of Business

In this second seminar of the Europe Center's "European and Global Economic Crisis Series", Professor Hanno Lustig will discuss how a conspicuous amount of risk is missing from the price of financial sector crash insurance during the 2007-2009 crisis and that the difference in costs of put options for individual banks, and puts on the financial sector index, increases fourfold from its pre-crisis level. He provides evidence that a collective government guarantee for the financial sector lowers index put prices far more than those of individual banks, explaining the divergence. By embedding a bailout in the standard option pricing model, observed put spread dynamics is closely replicated. During the crisis, the spread responds acutely to government intervention announcements.