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Title: A Structural Balance Sheet Model of Sovereign Credit Risk
Authors: François, Pascal
Hübner, Georges
Sibille, Jean-Roch
Keywords: Sovereign Credit Spread
Balance Sheet
Recovery Rate
Contingent Claims Analysis
Contagion Effects
Issue Date: 2011-12
Series/Report no.: Cahiers du CIRPÉE;11-41
Abstract: This article 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.
URI: https://depot.erudit.org/id/003574dd
Appears in Collections:Cahiers de recherche du CIRPÉE

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