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Debt Relief

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  • Hayri, A.

Abstract

I develop a model of secondary market pricing of sovereign debt when the creditors can reduce the debt. The sovereign obtains a stochastic revenue flow from the external sector and have a constant debt flow obligation. Default is costly for both the sovereign and the creditors and the possibility to reduce debt creates a surplus. The creditors can capture this surplus only if they can continuously adjust the debt flow.

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Bibliographic Info

Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 459.

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Length: 40 pages
Date of creation: 1996
Date of revision:
Handle: RePEc:wrk:warwec:459

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Keywords: PRICING; DEBT; ECONOMIC MODELS;

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References

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  1. Elhanan Helpman, 1988. "Voluntary Debt Reduction: Incentives and Welfare," NBER Working Papers 2692, National Bureau of Economic Research, Inc.
  2. Bulow, Jeremy & Rogoff, Kenneth S., 1989. "A Constant Recontracting Model of Sovereign Debt," Scholarly Articles 12491028, Harvard University Department of Economics.
  3. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  4. Diwan, Ishac & Spiegel, Mark M., 1994. "Are buybacks back? Menu-driven debt reduction schemes with heterogeneous creditors," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 279-293, October.
  5. Claessens, Stijn & Pennacchi, George, 1996. "Estimating the Likelihood of Mexican Default from the Market Prices of Brady Bonds," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(01), pages 109-126, March.
  6. Dooley, Michael & Fernandez-Arias, Eduardo & Kletzer, Kenneth, 1996. "Is the Debt Crisis History? Recent Private Capital Inflows to Developing Countries," World Bank Economic Review, World Bank Group, vol. 10(1), pages 27-50, January.
  7. Froot, Kenneth A, 1989. "Buybacks, Exit Bonds, and the Optimality of Debt and Liquidity Relief," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(1), pages 49-70, February.
  8. Leonardo Bartolini & Avinash Dixit, 1991. "Market Valuation of Illiquid Debt and Implications for Conflicts among Creditors," IMF Staff Papers, Palgrave Macmillan, vol. 38(4), pages 828-849, December.
  9. Cohen, Daniel, 1990. "A Valuation Formula for LDC Debt," CEPR Discussion Papers 460, C.E.P.R. Discussion Papers.
  10. Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
  11. Claessens, Stijn & Diwan, Ishac, 1994. "Recent experience with commercial bank debt reduction: Has the "menu" outdone the market?," World Development, Elsevier, vol. 22(2), pages 201-213, February.
  12. Jeremy I. Bulow & Kenneth Rogoff, 1987. "A Constant Recontracting Model of Sovereign Debt," NBER Working Papers 2088, National Bureau of Economic Research, Inc.
  13. Claessens, Stijn & van Wijnbergen, Sweder, 1993. "The 1990 Mexico and Venezuela recapture clauses: An application of average price options," Journal of Banking & Finance, Elsevier, vol. 17(4), pages 733-745, June.
  14. Claessens, Stijn, 1990. "The debt laffer curve: Some estimates," World Development, Elsevier, vol. 18(12), pages 1671-1677, December.
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Cited by:
  1. Pierre Mella-Barral & Pierre Tychon, 1996. "Default Risk in Asset Pricing," FMG Discussion Papers dp250, Financial Markets Group.
  2. Andrade, Sandro C., 2009. "A model of asset pricing under country risk," Journal of International Money and Finance, Elsevier, vol. 28(4), pages 671-695, June.
  3. Ajit Singh & Ann Zammitt, 2003. "Globalisation, labour standards and economic development," ESRC Centre for Business Research - Working Papers wp257, ESRC Centre for Business Research.
  4. Pascal François & Georges Hübner & Jean-Roch Sibille, 2011. "A Structural Balance Sheet Model of Sovereign Credit Risk," Cahiers de recherche 1141, CIRPEE.
  5. Michael WESTPHALEN, 2002. "Valuation of Sovereign Debt with Strategic Defaulting and Rescheduling," FAME Research Paper Series rp43, International Center for Financial Asset Management and Engineering.

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