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Evaluating the sovereign and household credit risk in Singapore: A contingent claims approach

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  • Lai, Wan-Ni

Abstract

This study evaluates the credit risk of the household and government (sovereign) sectors in Singapore using the contingent claims approach (CCA). The CCA model estimates the default probability of both sectors based on the market value of the assets and liabilities of the sectors. Compared to the traditional credit rating system, this model is able to provide numerical estimates of the exposures and default probabilities. We find that from the year 2000 to 2013, variations in the credit risk measures correspond to the economic growth of Singapore. In addition, we suggest that the main factor affecting the credit risks in the government and household sectors in Singapore is the volatility of the assets held by both sectors, given that the asset-to-distress barrier ratios are relatively stable over the past 14 years for both sectors.

Suggested Citation

  • Lai, Wan-Ni, 2016. "Evaluating the sovereign and household credit risk in Singapore: A contingent claims approach," Research in International Business and Finance, Elsevier, vol. 37(C), pages 435-447.
    • Handle: RePEc:eee:riibaf:v:37:y:2016:i:c:p:435-447
    DOI: 10.1016/j.ribaf.2016.01.014
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    Cited by:

    1. Carmelo Salleo & Alberto Grassi & Constantinos Kyriakopoulos, 2020. "A Comprehensive Approach for Calculating Banking Sector Risks," IJFS, MDPI, vol. 8(4), pages 1-21, November.
    2. Florent Kanga GBONGUE & Lambert N’Galadjo BAMBA, 2023. "Le modèle hybride de la structure par terme des primes souveraines de crédit et de liquidité dans la zone UEMOA," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 57, pages 101-145.

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