Country Risk: an empirical approach to estimate the probability of default in emergent markets

Gonzalo Camargo Cárdenas and Mayko Camargo Cardenas
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Gonzalo Camargo Cárdenas: Pontificia Universidad Católica del Perú - Departamento de economía

Revista Economía, 2004, issue 53-54, 173-212

Abstract: In this paper we have suggested a new methodology to estimate the probability of default of a country as a function of other macroeconomics variables. Such methodology is based in the valuation of the prices in the secondary market of bonds issued by debtor countries. We have chosen the Brady bonds because their institutional characteristics do not depend on the issuer country, which allows us to build a homogeneous panel. The methodology proposed takes elements of traditional models such as the functional structure of the probability and elernents of term structure models. The paper demonstrates a new way to extract sovereign nsk, implicit in trade bond prices.

Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:pcp:pucrev:y:2005:i:53-54:p:173-212

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