Sovereign rescheduling probabilities in emerging markets: a comparison with credit rating agencies' ratings

This study estimates default probabilities of 124 emerging countries from 1981 to 2002 as a function of a set of macroeconomic and political variables. The estimated probabilities are then compared with the default rates implied by sovereign credit ratings of three major international credit rating agencies (CRAs) – Moody's Investor's Service, Standard & Poor's and Fitch Ratings. Sovereign debt default probabilities are used by investors in pricing sovereign bonds and loans as well as in determining country risk exposure. The study finds that CRAs usually underestimate the risk of sovereign debt as the sovereign credit ratings from rating agencies are usually too optimistic.

Time domain decomposition for European options in financial modelling

Finance is one of the fastest growing areas in modern applied mathematics with real world applications. The interest of this branch of applied mathematics is best described by an example involving shares. Shareholders of a company receive dividends which come from the profit made by the company. The proceeds of the company, once it is taken over or wound up, will also be distributed to shareholders. Therefore shares have a value that reflects the views of investors about the likely dividend payments and capital growth of the company. Obviously such value will be quantified by the share price on stock exchanges. Therefore financial modelling serves to understand the correlations between asset and movements of buy/sell in order to reduce risk. Such activities depend on financial analysis tools being available to the trader with which he can make rapid and systematic evaluation of buy/sell contracts. There are other financial activities and it is not an intention of this paper to discuss all of these activities. The main concern of this paper is to propose a parallel algorithm for the numerical solution of an European option. This paper is organised as follows. First, a brief introduction is given of a simple mathematical model for European options and possible numerical schemes of solving such mathematical model. Second, Laplace transform is applied to the mathematical model which leads to a set of parametric equations where solutions of different parametric equations may be found concurrently. Numerical inverse Laplace transform is done by means of an inversion algorithm developed by Stehfast. The scalability of the algorithm in a distributed environment is demonstrated. Third, a performance analysis of the present algorithm is compared with a spatial domain decomposition developed particularly for time-dependent heat equation. Finally, a number of issues are discussed and future work suggested.

The future of energy: are competitive markets and nuclear power the answer?

The inaugural lecture of Professor Stephen Thomas at the University of Greenwich, 4th February 2010. It examines whether further pursuit of competition in energy markets and expansion in the role of nuclear power can be the main elements in a policy to meet goals of security, sustainability and affordability.