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Credit derivatives in emerging markets

Author

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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.

Suggested Citation

  • Romain Rancière, 2002. "Credit derivatives in emerging markets," Economics Working Papers 856, Department of Economics and Business, Universitat Pompeu Fabra.
    • Handle: RePEc:upf:upfgen:856
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    Citations

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    Cited by:

    1. 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.
    2. Afonso, António & Furceri, Davide & Gomes, Pedro, 2012. "Sovereign credit ratings and financial markets linkages: Application to European data," Journal of International Money and Finance, Elsevier, vol. 31(3), pages 606-638.
    3. Asonuma, Tamon & Niepelt, Dirk & Ranciere, Romain, 2023. "Sovereign bond prices, haircuts and maturity," Journal of International Economics, Elsevier, vol. 140(C).
    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.
    5. 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, vol. 43(11), pages 1399-1411.
    6. Frankel, Jeffrey, 2010. "Monetary Policy in Emerging Markets," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 25, pages 1439-1520, Elsevier.
    7. Lourdes Treviño, 2005. "Development and volume growth of organized derivatives trade in emerging markets," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(2), pages 31-82, November.
    8. Karumba, Mary & Wafula, Martin, 2012. "Collateral lending: Are there alternatives for the Kenyan banking industry?," KBA Centre for Research on Financial Markets and Policy Working Paper Series 3, Kenya Bankers Association (KBA).
    9. Kapitsinis, Nikolaos & Metaxas, Theodore, 2011. "Economic crisis and the role of state policies in current globalized economy. The case of Greece," MPRA Paper 43650, University Library of Munich, Germany.

    More about this item

    Keywords

    Emerging markets; derivatives; sovereign debt; debt restructuring;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • G1 - Financial Economics - - General Financial Markets

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