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Paper proposes a framework showing how institutional credibility impacts global market volatility.
This paper proposes the Institutional Insurance Premium (IIP) framework: internationalinstitutions function as systemic risk absorbers that compress the lower bound ofimplied volatility, providing implicit put protection on global tail risk. Wheninstitutional credibility deteriorates, this put is withdrawn and markets must self-insureat higher cost. We derive a condition under which credibility-reducing events areassociated with a higher structural volatility floor through a regime-uncertainty premiumthat does not mean-revert.
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Alex Lima (2026) studied this question.
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