Are the Risk-Free Interest Rates Correlated with Sovereign Default Intensities?

Yusho Kagraoka
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引用次数: 1

Abstract

This study proposes a new methodology to estimate credit default swap- (CDS-) adjusted risk-free interest rates and sovereign default intensities. Government bond yields in a local currency and CDS premiums in a foreign currency are used to estimate the CDS-adjusted risk-free interest rate, which is adjusted for the default risk of a government and is immune to its correlation with the sovereign default intensity. The method is based on the fact that risk-free interest rates and sovereign default intensities in the same currency are correlated, whereas the correlations between the risk-free interest rates in a foreign currency and the default intensities are close to zero except during worldwide financial turmoil such as the European sovereign debt crisis. The methodology is applied to the German and US markets and the CDS-adjusted risk-free interest rates in US dollars and euros, and the sovereign default intensities of Germany and the United States are successfully estimated.
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无风险利率是否与主权违约强度相关?
本研究提出一种新的方法来估计信用违约互换(CDS)调整后的无风险利率和主权违约强度。用本币政府债券收益率和外币CDS溢价来估算CDS调整后的无风险利率,该利率根据政府的违约风险进行调整,不受其与主权违约强度的相关性影响。该方法是基于这样一个事实,即同一货币的无风险利率和主权违约强度是相关的,而外币的无风险利率和违约强度之间的相关性接近于零,除非在全球金融动荡期间,如欧洲主权债务危机。将该方法应用于德国和美国市场以及经cds调整后的美元和欧元无风险利率,成功估算了德国和美国的主权违约强度。
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来源期刊
Journal of Fixed Income
Journal of Fixed Income Economics, Econometrics and Finance-Economics and Econometrics
CiteScore
1.10
自引率
0.00%
发文量
23
期刊介绍: The Journal of Fixed Income (JFI) provides sophisticated analytical research and case studies on bond instruments of all types – investment grade, high-yield, municipals, ABSs and MBSs, and structured products like CDOs and credit derivatives. Industry experts offer detailed models and analysis on fixed income structuring, performance tracking, and risk management. JFI keeps you on the front line of fixed income practices by: •Staying current on the cutting edge of fixed income markets •Managing your bond portfolios more efficiently •Evaluating interest rate strategies and manage interest rate risk •Gaining insights into the risk profile of structured products.
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