Sovereign Bond-Backed Securities: A VAR-for-VaR and Marginal Expected Shortfall Assessment

Maite De Sola Perea, Peter Dunne, Martin Puhl and Thomas Reininger
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Maite De Sola Perea: National Bank of Belgium
Martin Puhl: Oesterreichishe Nationalbank
Thomas Reininger: Oesterreichishe Nationalbank

No 3/RT/18, Research Technical Papers from Central Bank of Ireland

Abstract: Brunnermeier et al., (2017) propose a securitisation solution for the bank-sovereign doom-loop. This shields senior tranche investors from actual defaults but whether it stabilises flight-to-safety panics is unclear. We apply dynamic VaR and Marginal Expected Shortfall methods to assess whether real-time risks to investors are attenuated by holding sovereign bond-backed securities. Price dynamics are derived using a Monte Carlo method. We find that holders of the senior tranche would be as safe as holders of German bunds. Mezzanine risk exposure would be moderate. The junior tranche experiences less severe shocks than high-risk sovereigns. The proposal significantly reduces destabilising market dynamics.

Keywords: Safe Assets; Sovereign Bonds; Value-at-Risk; Spillover; CAViaR; Co-Dependence (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 E53 G12 G14 (search for similar items in EconPapers)
Date: 2018-02
New Economics Papers: this item is included in nep-fmk and nep-mac
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Sovereign bond-backed securities: A VAR-for-VaR and marginal expected shortfall assessment (2019)
Working Paper: Sovereign bond-backed securities: a VAR-for-VaR and Marginal Expected Shortfall assessment (2018)
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