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Credit derivatives in emerging markets

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  • Romain Rancière

Abstract

Credit Derivatives are securities that offer protection against credit or default risk of bonds or loans. The credit derivatives emerging market has grown rapidly and credit derivatives are widely used. This paper describes the emerging credit derivatives market structure. The current market activity is analyzed through elementary pricing dynamics and the study of the term structure of default risk. Focusing on the performance of credit derivatives in stress situation, including legal and market risks, we discuss the potential consequences of a debt restructuring in a large emerging market borrower. The contribution of credit derivatives to the risk sharing in emerging markets is also examined.

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File URL: http://www.econ.upf.edu/docs/papers/downloads/856.pdf
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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 856.

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Date of creation: Apr 2002
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Handle: RePEc:upf:upfgen:856

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Web page: http://www.econ.upf.edu/

Related research

Keywords: Emerging markets; derivatives; sovereign debt; debt restructuring;

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Cited by:
  1. António Afonso & Davide Furceri & Pedro Gomes, 2011. "Sovereign credit ratings and financial markets linkages: application to European data," Working Papers Department of Economics, ISEG - School of Economics and Management, Department of Economics, University of Lisbon 2011/14, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  2. Yi-Hsuan Chen & Kehluh Wang & Anthony Tu, 2011. "Default correlation at the sovereign level: evidence from some Latin American markets," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 43(11), pages 1399-1411.
  3. Ismailescu, Iuliana & Kazemi, Hossein, 2010. "The reaction of emerging market credit default swap spreads to sovereign credit rating changes," Journal of Banking & Finance, Elsevier, vol. 34(12), pages 2861-2873, December.
  4. Bauer, Christian & Herz, Bernhard & Hoops, Stefan, 2008. "A Cheap Lunch for Emerging Markets: Removing International Financial Market Imperfections with Modern Financial Instruments," World Development, Elsevier, vol. 36(9), pages 1514-1530, September.

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