Resumen de A critique of the contingent claims approach to sovereign risk analysis

Rahmi Erdem Aktug

• 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