Credit Default Swaps and Sovereign Debt with Moral Hazard and Debt Renegotiation
نویسندگان
چکیده
منابع مشابه
Sovereign Debt Renegotiation and Credit Default Swaps
A credit default swap (CDS) contract provides insurance against default. After a country defaults, the country and its lenders usually negotiate over the share of the defaulted debt to be repaid. This paper incorporates CDS contracts into a sovereign default model and demonstrates that the existence of a CDS market results in lower default probability, higher debt levels, and lower nancing cost...
متن کاملDuration of sovereign debt renegotiation
Sovereign debt renegotiations take an average of nine years for bank loans but only one year for bonds. Our paper provides an explanation to this finding by highlighting one key difference between bank loans and bonds: bank debt is rarely traded, while bond debt is heavily traded on the secondary market. The secondary market plays a crucial information revelation role in shortening renegotiatio...
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First passage models, where corporate assets undergo a random walk and default occurs if the assets fall below a threshold, provide an attractive framework for modeling the default process. Recently such models have been generalized to allow a fluctuating default threshold or equivalently a fluctuating total recovery fraction R. For a given company a particular type of debt has a recovery fract...
متن کامل“Sovereign Debt Crisis: Coordination, Bargaining and Moral Hazard”
We study the interaction between (a) inefficiencies in the post-default debtor-creditor bargaining game and (b) ex ante debtor moral hazard and excessive lending in sovereign debt markets. Conditional on default, selffulfilling debt crisis driven by creditor coordination failure exists and crisis risk is inefficiently high. Strengthening collective action clauses (CACs) has an ambiguous impact ...
متن کاملCredit Derivatives and Sovereign Debt Crises
The new markets for credit derivatives allow for buying protection on sovereign debt. This paper considers the implications for sovereign debt crises. We show that the availability of credit protection lowers ex-ante debtor moral hazard by allowing a bondholder to improve his bargaining position in negotiations with the sovereign, thus forcing the sovereign to internalize more of the costs of a...
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ژورنال
عنوان ژورنال: SSRN Electronic Journal
سال: 2011
ISSN: 1556-5068
DOI: 10.2139/ssrn.1825526