Title: Contingent Claims Approach to Measuring and Managing Sovereign Credit Risk
Abstract: World Scientific Reference on Contingent Claims Analysis in Corporate Finance, pp. 283-319 (2019) No AccessContingent Claims Approach to Measuring and Managing Sovereign Credit RiskDale F. Gray, Robert C. Merton and Zvi BodieDale F. GrayMonetary and Capital Markets Department, International Monetary Fund, and MF Risk, Inc., U.S., Robert C. MertonA.P. Sloan School of Management, Massachusetts Institute of Technology, USA and Zvi BodieBoston University, USAhttps://doi.org/10.1142/9789814759618_0010Cited by:32 PreviousNext AboutSectionsPDF/EPUB ToolsAdd to favoritesDownload CitationsTrack CitationsRecommend to Library ShareShare onFacebookTwitterLinked InRedditEmail Abstract: This paper proposes a new approach to measure, analyze, and manage sovereign risk based on the theory and practice of modern contingent claims analysis (CCA). The paper provides a new framework for adapting the CCA model to the sovereign balance sheet in a way that can help forecast credit spreads and evaluate the impact of market risks and risks transferred from other sectors. This new framework is useful for assessing vulnerability, policy analysis, sovereign credit risk analysis, and design of sovereign risk mitigation and control strategies. Applications for investors in three areas are discussed. First, CCA provides a new framework for valuing, investing, and trading sovereign securities, including sovereign capital structure arbitrage. Second, it provides a new framework for analysis and management of sovereign wealth funds being created by many emerging market and resource rich countries. Third, the framework provides quantitative measures of sovereign risk exposures which facilitates the design of new instruments and contracts to control or transfer sovereign risk. This article originally appeared in the Journal of Investment Management (2007), 5(4), 5–28. FiguresReferencesRelatedDetailsCited By 32Examining the interconnectedness and early warning signals of systemic risks of shadow banks: an application to the Indian shadow bank crisisAnurag Chaturvedi and Archana Singh21 April 2022 | Kybernetes, Vol. 30Sovereign Default Forecasting in the Era of the COVID-19 CrisisTamás Kristóf15 October 2021 | Journal of Risk and Financial Management, Vol. 14, No. 10Sea Level Rise and Municipal Bond YieldsPaul S. Goldsmith-Pinkham, Matthew Gustafson, Ryan Lewis and Michael Schwert1 Jan 2019 | SSRN Electronic Journal, Vol. 33시장위험 부도확률 모형을 이용한 예금보험공사 차등평가모형의 정합성 연구: 은행업권을 중심으로(A Comparative Study of Bank Risk-Based Deposit Insurance Premium System Using Market Approach Method)Ki Beom Binh, Tae-Jun Park and Pyoung Hoon Chang1 Jan 2018 | SSRN Electronic Journal, Vol. 17Robert C. 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Publication Year: 2019
Publication Date: 2019-03-01
Language: en
Type: book-chapter
Indexed In: ['crossref']
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Cited By Count: 139
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