Abstract

http://ssrn.com/abstract=1630525
 
 

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Estimating Implied Default Probabilities and Recovery Values: The Case of Greece During the 2010 European Debt Crisis


Evert B. Vrugt


VU University Amsterdam, PGO-IM

June 25, 2010


Abstract:     
This paper develops a framework to estimate implied recovery values and risk-neutral default probability term-structures from sovereign bond prices. The model is applied to Greek bonds during the European debt crisis of 2010. In April and May 2010, the probability of a Greek default quickly rises from 5% to 40%. On Monday 10 May 2010, after EU finance ministers, the ECB and the IMF agree on a EUR 750 billion EU-wide rescue package, the default probability drops instantaneously below 10%. The implied recovery value remains between 40 and 60 cents on the euro and does not get revised materially during this period.

Number of Pages in PDF File: 18

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Date posted: June 26, 2010  

Suggested Citation

Vrugt, Evert B., Estimating Implied Default Probabilities and Recovery Values: The Case of Greece During the 2010 European Debt Crisis (June 25, 2010). Available at SSRN: http://ssrn.com/abstract=1630525 or http://dx.doi.org/10.2139/ssrn.1630525

Contact Information

Evert B. Vrugt (Contact Author)
VU University Amsterdam, PGO-IM ( email )
De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands
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