FINANCIAL DERIVATIVES - MAIN INSTRUMENTS IN DESIGNING EFFECTIVE EARLY WARNING SYSTEMS FOR FINANCIAL CRISES

Maria Paskaleva

Abstract


Current study aims to build an effective system for early warning of the financial crisis in the capital markets of eleven EU Member States, namely: France, Germany, the United Kingdom, Belgium, Bulgaria, Romania, Greece, Portugal, Ireland, Italy and Spain, for the period 2003-2016. Logistic regression is applied. Developing an early warning system based mainly on CDS quotes and VIX dynamics has been demonstrated to have the following advantages: the reliability of predictions in euro area Member States and the reduction of the likelihood of self-fulfilling prophecies.

Keywords


financial derivatives, financial crisis, early warning system, logistic regression

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