A critique of the contingent claims approach to sovereign risk analysis

• Autores: Rahmi Erdem Aktug
• Localización: Emerging Markets Finance & Trade, ISSN-e 1558-0938, Nº. 50 (Supplement Jan/Feb), 2014, págs. 294-308
• Idioma: inglés
• DOI: 10.2753/ree1540-496x5001s118
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• Resumen

  • In this paper, I examine the contingent claims approach (CCA) to measuring sovereign risk. Specifically, I extend previous work in this area and apply the CCA framework to three emerging markets-Brazil, Mexico, and Turkey-over the period 2001-10. I find that the CCA underestimates credit default swap spreads and default probabilities. Consequently, I point out the shortcomings of the CCA and suggest some remedies