Country Default Probabilities: Assessing and Backtesting

Konstantin Vogl, Dominik Maltritz, Stefan Huschens and Alexander Karmann

No 12/06, Dresden Discussion Paper Series in Economics from Technische Universität Dresden, Faculty of Business and Economics, Department of Economics

Abstract: We address the problem how to estimate default probabilities for sovereign countries based on market data of traded debt. A structural Merton-type model is applied to a sample of emerging market and transition countries. In this context, only few and heterogeneous default probabilities are derived, which is problematic for backtesting. To deal with this problem, we construct likelihood ratio test statistics and quick backtesting procedures.

Keywords: Sovereign default; Country risk; Default probability; Likelihood ratio test (search for similar items in EconPapers)
JEL-codes: C12 C53 F34 G33 (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuddps:1206

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