Credit risk-free sovereign bonds under Solvency II: a cointegration analysis with consistently estimated structural breaks

Alexander Ludwig

Applied Financial Economics, 2014, vol. 24, issue 12, 811-823

Abstract: European insurance and reinsurance undertakings are facing the advent of a new regulatory framework. In the current proposal for its technical specifications under the pillar 1 standard formula, sovereign debt of European Union (EU) member states is treated as risk-free. This article examines the validity of this assumption for 26 EU member states. Taking into account the possibility of multiple structural breaks, we find evidence for the convergence of government bond yields of several countries with the yields of a risk-free asset. For the majority of countries, however, there is no such evidence. A detailed discussion of regime shifts in relation to European bond market integration is provided. Our findings have important implications for insurance companies, bond investors and regulators alike.

Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://hdl.handle.net/10.1080/09603107.2014.909573 (text/html)
Access to full text is restricted to subscribers.

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:taf:apfiec:v:24:y:2014:i:12:p:811-823

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAFE20

DOI: 10.1080/09603107.2014.909573

Access Statistics for this article

Applied Financial Economics is currently edited by Anita Phillips

More articles in Applied Financial Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().