Of Haircuts and Extensions: An Analysis of Greek Government Debt

International Research Journal of Applied Finance, Vol. VI Issue – 8 August, 2015

11 Pages Posted: 1 Sep 2015

See all articles by Mathias Moersch

Mathias Moersch

Heilbronn University

Carolin Schmidt

Centre for European Economic Research (ZEW); University of Tuebingen

Date Written: August 31, 2015

Abstract

In light of the current negotiations concerning the Greek debt, this paper conducts a valuation analysis based on the Present Value (PV) method. We explain the rationale for the PV method and use it to model a simplified representation of the Greek debt situation. We illustrate the effects of changes in the variables in the PV function and show that if the Greek loan interest rate was decreased by 50 basis points and the maturity of the debt was extended from 30 to 50 years, the effect would be equivalent to a haircut of roughly 59%.

Keywords: Present Value, Valuation, Debt restructuring, Greece

Suggested Citation

Moersch, Mathias and Schmidt, Carolin, Of Haircuts and Extensions: An Analysis of Greek Government Debt (August 31, 2015). International Research Journal of Applied Finance, Vol. VI Issue – 8 August, 2015. Available at SSRN: https://ssrn.com/abstract=2654096

Mathias Moersch

Heilbronn University ( email )

Max-Planck-Str. 39
Heilbronn, BW 74081
Germany

Carolin Schmidt (Contact Author)

Centre for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

University of Tuebingen ( email )

Nauklerstraße 47
72074 Tuebingen, Baden-Wuerttemberg 72074
Germany

HOME PAGE: http://www.carolinschmidt.de

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