The complex spillover effects between sectors observed during the global financial crisis and recent European crisis make clear the importance of improving our understanding of the interactions and feedback mechanisms between sovereign and banking-sector risks. To that end, this paper presents a...

This paper proposes a new approach to improve the way central banks can analyze and manage the financial risks of a national economy. It is based on the modern theory and practice of contingent claims analysis (CCA), which is successfully used today at the level of individual banks by managers,...