Valuing Sovereign Default Risk - A Pricing Formula and its Empirical Results for the Mexican External Debt.

Rapport de recherche

A pricing model for sovereign bonde

Similar to the modeling used to evaluate ccnporate boncls, where it is a put optioo. 011 corporate assets, we modeled sovereign bonds. Instead of company's assets as underlining assets, we used foreign excbange reserves. The results show a fundamental pricing model for sovereign bond and an optimum relation between the debt size, term, mix between floating and fixed interest payments, and size of reserves. The model is tested with a Brazilian BradyBond.

Preventing the rise of sovereign borrowing costs in the Eurozone: what can the ESM and the ECB achieve? Egmont Paper No. 56, November 2012

This paper focuses on the possible instruments for ‘ex-ante’/’preventive’/’precautionary’ interventions which can be deployed by the ESM and the ECB in order to prevent a debt crisis in a eurozone country. The potential of Eurobonds will also be discussed in this crisis management perspective. The first part of this paper traces the underlying trends of the evolution of interest rates in eurozone countries over the last decades. The second part discusses the principles of a preventive intervention in sovereign bond markets for the purpose of lowering borrowing costs of countries facing refinancing constraints; the limits and main issues of an ex-ante intervention will be underlined. In the third part, the properties of the ESM’s precautionary financial assistance and secondary market support facility will be discussed in details. The ECB preemptive intervention policies and, in particular, the OMT will be analyzed in the fourth part of the paper. The most likely course of action – a combined intervention by the ESM and the ECB – will be discussed in the fifth part. Finally, I will point out the core challenges of introducing Eurobonds as additional instruments to mitigate the rise of borrowing costs in the short term.

Az államcsőd költségei régen és ma (Costs of sovereign defaults now and long ago)

Az államoknak nyújtott hitelekre gyakran gondolunk biztonságos befektetésként, lehetetlen vagy legalábbis valószerűtlen kimenetelként kezelve az államcsőd lehetőségét. Pedig államcsődök azóta vannak, amióta szuverén államok hitelt vesznek fel, és még csak nem is ritka eseményekről van szó. Amikor egy-egy válság vagy csődesemény felhívja erre a figyelmünket, a leggyakrabban elhangzó kérdés az, hogy miért következett be a csőd. Ebben a tanulmányban a szerző ennél furcsább kérdésre hívja fel a figyelmet: mi késztet egy hitelt felvevő államot arra, hogy visszafizesse hiteleit, vagyis miért nem megy csődbe? Ez rögtön felvet egy további, talán még meglepőbb problémát: miért kap egyáltalán egy szuverén állam hitelt? Ezekre a kérdésekre már régóta tudni véljük a választ: azért, mert az államcsődnek költségei vannak. A lehetséges költségek és a hozzájuk kapcsolódó empirikus kutatások értelmezésével és rendszerezésével, az ellentmondások feltárásával azonban a szerző felhívja a figyelmet arra, hogy bár elképzeléseink vannak és lehetnek, valójában nem ismerjük a törlesztést kikényszerítő és így az államadósságok létezését biztosító mechanizmusokat. Talán éppen azért nem, mert az államcsőd lehetséges politikai, gazdasági következményei - azaz költségei - idővel legalább annyira változnak, mint öltözködési, étkezési és közlekedési szokásaink. ____ Loans to sovereign states are often referred to as safe investments, treating default as an impossible or at least improbable event. Yet sovereign defaults have been arising ever since countries borrowed money. They are not rare at all. When a debt crisis or default event draws attention to the problem, the commonest question put is why defaults occur. This paper stresses the need to ask a less common question as well: why sovereign states repay loans, why they do not default. Consequent on that is why rational lenders give money to countries. The answer to these questions seems to be because defaults are costly. The paper reviews and systematizes possible cost types and explores inconsistencies in the related literature, to show that the mechanisms supporting the existence of sovereign debts are not precisely known. One reason why costs of defaults are challenging to study may be that the possible political and economic consequences of defaults change over time.

Dislodgement of commercial property public debt markets : the case of U.S. and Australia

The paper investigates if there are any discernible trends in the U.S. and Australian commercial property public debt markets with the onset of the global financial crisis (GFC). Commercial mortgage-backed securities and unsecured bonds issued by real estate investment trusts for the period 2000 to Q3:2009 are reviewed. It is shown that events in the equity markets have an impact on the pricing of these two instruments. Furthermore, the impact of subdued activity in these financing instruments on the commercial property market is discussed.

District Court debt decisions

This article examines the distinction between a "liquidated demand" and a claim for "unliquidated damages" and the implications of that distinction on the procedure for obtaining a judgment if the defendant fails to file a notice of intention to defend.

CFO inside debt and corporate innovation

This thesis examines the importance of CFO incentives on the value maximization of firm. It examines the association between CFO inside debt compensation i.e., CFO pensions and deferred compensation, and investment in corporate innovation. It finds that instead of encouraging innovation, CFO inside debt appears to have a dampening effect on investment in innovation.

The discursive nature of citizenship : Indigenous sovereign rights, racism and welfare reform

Citizenship is more than a status associated with a bundle of rights; it is also the formal contract by which the sovereignty of a nation is extended to the individual in exchange for being governed. Who can and who cannot contract into this status and what rights are able to be exercised is also shaped by who possesses the nation. In this article it is argued that citizenship operates discursively to contain Indigenous people’s engagement with the economy through social rights. This containment precludes consideration of Indigenous sovereign rights to our lands and resources, to enable Indigenous economic development within a capitalist market economy.

Banking sector contingent liabilities and sovereign risk

The global financial crisis has underscored the need to pay attention to contingent government liabilities that could arise from bank failures for sovereign risk management. This paper proposes a simple method to construct a contingent liability index (CLI) for a banking sector that takes into account the size and concentration of the banking system, market expectations of bank defaults, and perceptions of government support to each bank. This method allows us to track potential government liabilities related to bank failures for 32 advanced and emerging economies on a monthly basis from 2006 to 2013. Furthermore, we find that the CLI is a significant determinant of sovereign CDS spreads. Our results suggest that a 1 percentage point increase in the CLI is associated with an increase in sovereign CDS spreads by 24 basis points for advanced economies and 75 basis points for emerging markets on average.

Australia’s film industry owes a debt to Gough Whitlam

Filmmakers and audiences – indeed Australian arts and screen culture more broadly – owe a deep debt of gratitude to Gough Whitlam and the government he led. Although the foundations had been laid by Whitlam’s predecessors John Gorton and Billy McMahon, the Australian film revival of the 1970s only really took shape after Whitlam became Prime Minister in 1972...