TY - UNPB
T1 - Joint default probabilities and country risk
AU - Scholtens, Bert
AU - Hameeteman, Daphne
N1 - Relation: http://som.rug.nl/ date_submitted:2004 Rights: Graduate School/Research Institute, Systems, Organisations and Management (SOM)
PY - 2003
Y1 - 2003
N2 - The assessment of country risk is of crucial importance for both developing countries and international lenders and investors. Many existing country risk approaches are opaque and heavily rely on subjective choices. In general, they lack a theoretical basis. To assess country risk, we use the Merton model in which a loan defaults if the value of a firm’s assets falls below the amount due to the loan. In a portfolio context, this implies that default correlations warrant the utmost attention. We find that country default correlations are significant and low. Furthermore, joint defaults tend to be clustered in Latin American and Eastern European transition countries, but not in Asia.
AB - The assessment of country risk is of crucial importance for both developing countries and international lenders and investors. Many existing country risk approaches are opaque and heavily rely on subjective choices. In general, they lack a theoretical basis. To assess country risk, we use the Merton model in which a loan defaults if the value of a firm’s assets falls below the amount due to the loan. In a portfolio context, this implies that default correlations warrant the utmost attention. We find that country default correlations are significant and low. Furthermore, joint defaults tend to be clustered in Latin American and Eastern European transition countries, but not in Asia.
M3 - Working paper
BT - Joint default probabilities and country risk
PB - s.n.
ER -