Sovereign Credit Spread; Balance Sheet; Recovery Rate; Contingent Claims Analysis; Strategic Decision to Default; Contagion
Abstract :
[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.
Disciplines :
Finance
Author, co-author :
François, Pascal
Hübner, Georges ; Université de Liège - ULiège > HEC-Ecole de gestion : UER > Gestion financière
Sibille, Jean-Roch
Language :
English
Title :
A Structural Balance Sheet Model of Sovereign Credit Risk
Publication date :
2011
Journal title :
Finance
ISSN :
0752-6180
eISSN :
2101-0145
Publisher :
Presses Universitaires de Grenoble, Grenoble, France
Volume :
1
Issue :
2
Pages :
293-321
Peer reviewed :
Peer reviewed
Funders :
Belgian Intercollegiate Center for Management Science (ICM) CRSH - Conseil de Recherches en Sciences Humaines [CA]
