A Critique of the Contingent Claims Approach to Sovereign Risk Analysis

Rahmi Erdem Aktug

Emerging Markets Finance and Trade, 2014, vol. 50, issue 1S, 294-308

Abstract: In this paper, I examine the contingent claims approach (CCA) to measuring sovereign risk. Specifically, I extend previous work in this area and apply the CCA framework to three emerging markets—Brazil, Mexico, and Turkey—over the period 2001-10. I find that the CCA underestimates credit default swap spreads and default probabilities. Consequently, I point out the shortcomings of the CCA and suggest some remedies.

Keywords: contingent claims; credit default swap; default probability; sovereign risk (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (7)

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