Swap Volatility Dynamics and the Transmission of Systemic Risk in Hong Kong

Explore alternative measures of systemic risk for the financial sector based on forecast error variance decomposition as well as covariance-at-risk. You’ll see how to assess the relative importance of divergences in the implied volatility measures for swap-options for government securities issued in Hong Kong and the United States. In previous work on the mainland Chinese banking system, the effect of global and US economic uncertainty indices was transmitted to mainland China through divergences between the onshore CNY exchange rate and the offshore CNH exchange rate. Since Hong Kong has a hard peg with the dollar, discover how divergences in swap volatility dynamics affect the transmission of uncertainty indices to the Hong Kong financial system.