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The End

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Author Info

  • Jorge A. Chan-Lau
  • Toni Gravelle

Abstract

This paper describes a corporate sector vulnerability indicator, the expected number of defaults (END), based on the joint occurrence of defaults among a number of firms and/or institutions. The END indicator is general enough to assess systemic risk in the corporate and financial sectors, as well as systemic sovereign risk; and is also forward looking as it is constructed using information implied by financial securities prices. Using equity prices and balance-sheet data, we calculate the END to assess systemic risk in the corporate sector in Korea, Malaysia, and Thailand. We also discuss how the END systemic risk indicator overcomes some of the shortcomings of other vulnerability indicators.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/231.

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Length: 17
Date of creation: 01 Dec 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/231

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Web page: http://www.imf.org/external/pubind.htm
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Related research

Keywords: Credit risk; Risk premium; Financial sector; Corporate sector; probability; systemic risk; probabilities; correlation; probability distribution; correlations; principal components analysis; contagion; asian crisis; standard deviation; contingent liabilities; calibration; probability distributions; statistics; time series; systemic crisis; normal distribution; recapitalization; banking crisis; post-crisis period; stochastic process; debt crisis;

This paper has been announced in the following NEP Reports:

References

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  1. Gropp, Reint & Vesala, Jukka & Vulpes, Giuseppe, 2006. "Equity and Bond Market Signals as Leading Indicators of Bank Fragility," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 38(2), pages 399-428, March.
  2. Arnaud Jobert & Janet Kong & Jorge A. Chan-Lau, 2004. "An Option-Based Approach to Bank Vulnerabilities in Emerging Markets," IMF Working Papers 04/33, International Monetary Fund.
  3. Jorge A. Chan-Lau & Yoon Sook Kim, 2004. "Equity Prices, Credit Default Swaps, and Bond Spreads in Emerging Markets," IMF Working Papers 04/27, International Monetary Fund.
  4. Hull, John & Predescu, Mirela & White, Alan, 2004. "The relationship between credit default swap spreads, bond yields, and credit rating announcements," Journal of Banking & Finance, Elsevier, Elsevier, vol. 28(11), pages 2789-2811, November.
  5. Piyabha Kongsamut & V. Haksar, 2003. "Dynamics of Corporate Performance in Thailand," IMF Working Papers 03/214, International Monetary Fund.
  6. Merton, Robert C., 1973. "On the pricing of corporate debt: the risk structure of interest rates," Working papers, Massachusetts Institute of Technology (MIT), Sloan School of Management 684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
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