A Continuous-Time Inequality Measure Applied to Financial Risk: The Case of the European Union

Guglielmo D’Amico, Philippe Regnault, Stefania Scocchera and Loriano Storchi
Additional contact information
Guglielmo D’Amico: Department of Pharmacy, University of G. D’Annunzio, Chieti 66013, Italy
Philippe Regnault: U.F.R. Sciences Exactes et Naturelles, Université de Reims Champagne-Ardenne, 51100 Reims, France
Stefania Scocchera: Department of Pharmacy, University of G. D’Annunzio, Chieti 66013, Italy
Loriano Storchi: Department of Pharmacy, University of G. D’Annunzio, Chieti 66013, Italy

IJFS, 2018, vol. 6, issue 3, 1-16

Abstract: In this paper, we apply information theory measures and Markov processes in order to analyse the inequality in the distribution of the financial risk in a pool of countries. The considered financial variables are sovereign credit ratings and interest rates of sovereign government bonds of European countries. This paper extends the methodology proposed in our previous work, by allowing the possibility to consider a continuous time process for the credit rating evolution so that complete observations of rating histories and credit spreads can be considered in the analysis. Obtained results suggest that the continuous time model fits real data better than the discrete one and confirm the existence of a different risk perception among the three main rating agencies: Fitch, Moody’s and Standard & Poor’s. The application of the model has been performed by a software we developed, the full code is available on-line allowing the replication of all results.

Keywords: Markov chain; dynamic entropy; sovereign credit rating; credit spread (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.mdpi.com/2227-7072/6/3/62/pdf (application/pdf)
https://www.mdpi.com/2227-7072/6/3/62/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jijfss:v:6:y:2018:i:3:p:62-:d:154243

Access Statistics for this article

IJFS is currently edited by Ms. Hannah Lu

More articles in IJFS from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().