Reference : A Structural Balance Sheet Model of Sovereign Credit Risk
Scientific journals : Article
Business & economic sciences : Finance
A Structural Balance Sheet Model of Sovereign Credit Risk
François, Pascal mailto [> >]
Hübner, Georges mailto [Université de Liège - ULiège > HEC-Ecole de gestion : UER > Gestion financière >]
Sibille, Jean-Roch [> >]
Yes (verified by ORBi)
[en] Sovereign Credit Spread ; Balance Sheet ; Recovery Rate ; Contingent Claims Analysis ; Strategic Decision to Default ; Contagion
[en] This paper studies sovereign credit spreads using a contingent claims model and a balance sheet representation of the sovereign economy. Analytical formulae for domestic and external
debt values as well as for the financial guarantee are derived in a framework where recovery rate is endogenously determined as the solution of a strategic bargaining game. The approach allows to relate sovereign credit spreads to observable macroeconomic factors, and in particular accounts for contagion effects through the corporate and banking sectors. Pricing performance as well as predictions about credit spread determinants are successfully tested on the Brazilian economy.
Belgian Intercollegiate Center for Management Science (ICM) ; SSHRC
Researchers ; Professionals

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