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Practice paper

Modelling sovereign default risk: comparing models and capturing the impact of the business cycle

Yao Djifa N'Sougan and Issouf Soumaré
Journal of Risk Management in Financial Institutions, 6 (1), 75-96 (2013)
https://doi.org/10.69554/KJAY4197

Abstract

This paper compares two sovereign default risk models: the contingent claims analysis method and the ordered probit econometric approach. The default indicators obtained from the two models are correlated with sovereign credit default swap spreads and indicate that sovereign default risk is higher during economic recessions than during expansions.

Keywords: sovereign default; contingent claims analysis; ordered probit; G13; G17; G24; G32

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Author's Biography

Yao Djifa N'Sougan is a recent graduate from the MSc in Financial Engineering program at Laval University (Canada). He also holds a Statistician-Economist Engineer degree from INSEA (Morocco) in 2007. He is interested in risk management, quantitative finance and econometric topics.

Issouf Soumaré is Associate Professor of Finance and Managing Director of the Laboratory for Financial Engineering at Laval University, Canada. His research and teaching interests include risk management, financial engineering and numerical methods in finance. He co-authored the book ‘Stochastic Simulation and Applications in Finance with Matlab Programs’ (Wiley). His theoretical and applied financial economic works have been published in leading international economics and finance journals. Issouf holds a PhD in business administration in finance from the University of British Columbia (Canada) and is also a certified Professional Risk Manager and Financial Risk Manager.

Citation

N'Sougan, Yao Djifa and Soumaré, Issouf (2013, January 1). Modelling sovereign default risk: comparing models and capturing the impact of the business cycle. In the Journal of Risk Management in Financial Institutions, Volume 6, Issue 1. https://doi.org/10.69554/KJAY4197.

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cover image, Journal of Risk Management in Financial Institutions
Journal of Risk Management in Financial Institutions
Volume 6 / Issue 1
© Henry Stewart
Publications LLP

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