A Simple Approach to Country Risk
37 Pages Posted: 20 Oct 2012 Last revised: 14 Jun 2013
Date Written: May 11, 1999
The no-arbitrage model by Schonbucher is combined with the extended Vasicek Term Structure Model and applied to the pricing of sovereign bonds. Practical hedging according to the model is investigated. A portfolio of bonds is investigated using the risk measures "shortfall" and "Value at Risk".
A revised version has been published in the book: Measuring Risk in Complex Stochastic Systems. Berlin: Springer 2000.
Keywords: country risk, delta hedging, no arbitrage, relative value, sovereign risk, sovereign bonds, emerging markets, hedging EM, hedging sovereign risk, hedging sovereign bonds
JEL Classification: F3, C3, G1, G3
Suggested Citation: Suggested Citation