A Critique of the Contingent Claims Approach to Sovereign Risk Analysis

Rahmi Aktug

Emerging Markets Finance and Trade, 2014, vol. 50, issue S1, 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.

Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:50:y:2014:i:s1:p:294-308

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DOI: 10.2753/REE1540-496X5001S118

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