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Expectations of risky bond payments are unobservable and recovery rates for sovereigns are hard to estimate because they have no contractual claims to defined assets and samples of defaults are limited. A geometric version of credit spread is used to derive expected payments, dependent on...
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developed methodology to data on major Eurozone sovereign borrowers and consider the most recent period of the Eurozone debt …
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In recent years, because of the 2008 financial crisis and the evolution of the sovereign debt markets, there has been a significant increase in interest in understanding the factors that determine the risk premium, becoming a key indicator of the financial stability of countries, and a measure...
Persistent link: https://www.econbiz.de/10015338584
We propose a method to extract individual firms' risk-neutral return distributions by combining options and credit default swaps (CDS). Options provide information about the central part of the distribution, and CDS anchor the left tail. Jointly, options and CDS span the intermediate part of the...
Persistent link: https://www.econbiz.de/10011779565
This paper explores how selective default expectations affect the pricing of sovereign bonds in a historical laboratory: the German default of the 1930s. We analyze yield differentials between identical government bonds traded across various creditor countries before and after bond market...
Persistent link: https://www.econbiz.de/10014495920
The paper considers a no-arbitrage setting for pricing and relative value analysis of risky sovereign bonds. The typical case of an emerging market country (EM) that has bonds outstanding both in foreign hard currency (Eurobonds) and local soft currency (treasuries) is inspected. The resulting...
Persistent link: https://www.econbiz.de/10012937615
We provide a model able to compute a threshold level for the public debt/GDP ratio, such that a country can be rescued by an official lender (e.g. ESM or IMF). The critical level is defined as the maximum level of debt/GDP, such that it is still possible to put the debt/GDP ratio on a...
Persistent link: https://www.econbiz.de/10013027940