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Debt Valuation: An Alternative Method to Avoid Future Default

In: Debt in Times of Crisis

Author

Listed:
  • Thomas Poufinas

    (Democritus University of Thrace)

  • Evaggelos Drimpetas

    (Democritus University of Thrace)

Abstract

Public debt has been troubling and troubles the governments of the countries, particularly those that in the recent years had fragile economies, some of which needed support programs such as Greece, Portugal, Cyprus and Ireland or Spain and Italy. The concern of governments and European authorities was to calculate the debt, in terms of GDP, its serviceability and sustainability, and its repayment in such a way that would mitigate the risk of future default. This study aims at assessing the debt of a country by taking into account the probability of future default. It uses actuarial techniques to estimate a burning cost similar to the one of life insurance protection schemes. The approach used in this study indirectly prices the debt through the calculation of the reserve needed to avoid the default of a country.

Suggested Citation

  • Thomas Poufinas & Evaggelos Drimpetas, 2021. "Debt Valuation: An Alternative Method to Avoid Future Default," Springer Books, in: Thomas Poufinas (ed.), Debt in Times of Crisis, chapter 0, pages 1-53, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-74162-4_1
    DOI: 10.1007/978-3-030-74162-4_1
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    Keywords

    Debt; Pricing; Actuarial; Reserve; Default;
    All these keywords.

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