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Title: Incorporating creditors' seniority into contingent claim models: Applicarion to peripheral euro area countries
Author: Gómez-Puig, Marta
Singh, Manish Kumar
Sosvilla Rivero, Simón, 1961-
Keywords: Deutor i creditor
Risc de crèdit
Zona euro
Debtor and creditor
Credit risk
Issue Date: 2018
Publisher: Universitat de Barcelona. Facultat d'Economia i Empresa
Series/Report no: [WP E-IR18/03]
Abstract: This paper highlights the role of multilateral creditors (i.e., the ECB, IMF, ESM etc.) and their preferred creditor status in explaining the sovereign default risk of peripheral euro area (EA) countries. Incorporating lessons from sovereign debt crises in general, and from the Greek debt restructuring in particular, we define the priority structure of sovereigns' creditors that is most relevant for peripheral EA countries in severe crisis episodes. This new priority structure of creditors, together with the contingent claims methodology, is then used to derive a set of sovereign credit risk indicators. In particular, the sovereign distance-to-default indicator, proposed in this paper (which includes both accounting metrics and market-based measures) aims to isolate sovereign credit risk by using information from the public sector balance sheets to build it up. Analyzing and comparing it with traditional market-based measures of sovereign risk suggests that the measurement and predictive ability of credit risk measures can be vastly improved if we account for the changing composition of sovereigns' balance sheet risk based on creditors' seniority.
Note: Reproducció del document publicat a:
It is part of: IREA – Working Papers, 2018, IR18/03
ISSN: 1136-8365
Appears in Collections:Documents de treball (Institut de Recerca en Economia Aplicada Regional i Pública (IREA))

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