A Critique of the Contingent Claims Approach to Sovereign Risk Analysis
Rahmi Erdem Aktug
The Richard Stockton College of New Jersey
May 8, 2013
Emerging Markets Finance and Trade, Vol. Jan-Feb, 2014
In this study, I examine the Contingent Claims Approach (CCA) to measure sovereign risk. Specifically, I extend the study by Gray et al. (2007), and apply the CCA framework to three emerging markets, Brazil, Mexico, and Turkey over the period 2001 to 2010. I find that CCA underestimates credit default swap spreads and default probabilities. Consequently, I point out the shortcomings of CCA, and suggest some remedies.
Number of Pages in PDF File: 26
Keywords: Sovereign Risk, Contingent Claims
JEL Classification: F34, G13Accepted Paper Series
Date posted: March 23, 2011 ; Last revised: August 13, 2014
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