Default-risky Sovereign Debt
AbstractNot only corporate but also sovereign debtors, in particular developing countries, may get into financial difficulties. Contrary to corporate issuers, they decide themselves if they continue to fulfill their debt obligations or convert their debt. I analyze the value of a default-risky sovereign bond in a setting in which foreign trade is reduced in case the country does not fulfill its obligations. Comparing the costs of debt service with the value of the punishment via foreign trade, the country voluntarily decides when to reorganize its debt. Knowing this threshold the value of a sovereign coupon-bond can be calculated.
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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse36_2002.
Date of creation: Nov 2002
Date of revision:
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Credit risk; sovereign debt; endogenous default;
Find related papers by JEL classification:
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-12-17 (All new papers)
- NEP-FIN-2002-12-17 (Finance)
- NEP-PBE-2002-12-17 (Public Economics)
- NEP-RMG-2002-12-17 (Risk Management)
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