Contingent Claims Analysis of Sovereign Debt Sustainability in Asian Emerging Markets

31 Pages Posted: 19 Jul 2016

See all articles by Marie Brière

Marie Brière

Paris Dauphine University

Benno Ferrarini

Asian Development Bank

Arief Ramayandi

Asian Development Bank - Economic Research

Date Written: June 2016

Abstract

Contingent claims analysis applied to Indonesia, Malaysia, the Philippines, the Republic of Korea, and Thailand shows no particular vulnerability to sovereign debt distress during recent years. However, the highly volatile “distance to distress” measure suggests that any of these countries may fall victim to a sudden loss in market confidence. For example, the value of Indonesia’s sovereign assets dropped to just two standard deviations above its repayment obligations during the 2013 United States Federal Reserve taper tantrum, causing capital outflows and currency depreciation. Generally, we find that contingent claims analysis and market-based risk measures well complement conventional debt sustainability analysis for Asia.

Keywords: contingent claims analysis, public debt sustainability

JEL Classification: E60, F34, G13, H63

Suggested Citation

Brière, Marie and Ferrarini, Benno and Ramayandi, Arief, Contingent Claims Analysis of Sovereign Debt Sustainability in Asian Emerging Markets (June 2016). Asian Development Bank Economics Working Paper Series No. 486, Available at SSRN: https://ssrn.com/abstract=2811537 or http://dx.doi.org/10.2139/ssrn.2811537

Marie Brière (Contact Author)

Paris Dauphine University ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

Benno Ferrarini

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Arief Ramayandi

Asian Development Bank - Economic Research ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

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