In the aftermath of the Great Recession and during the debt crisis in the euro area yields on German federal bonds have been exceptionally low. This analysis tries to calculate the profits that the federal government makes due to the low yields. The interest payments that are due to emissions of...

This paper tests variants of the Black (1995) model for pricing the sovereign Credit Default Swaps (CDS) of Greece, Ireland, Portugal, Spain and Italy. The default intensity of each country is driven by two latent Gaussian factors. The model, which well fits observed CDS rates, can only be...

This article outlines two general approaches to disentangle expected defaults and anticipated devaluations from distressed sovereign spreads. The first uses affine term structure models and uncovered interest rate parity to extract a schedule between risk-neutral devaluation odds and exchange...