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Pricing of sovereign credit risk : application to Turkey
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Date
2013
Author
Aslan, Aylin
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This thesis investigates the pricing of sovereign credit risk in the bond and credit default swap (CDS) market for Turkey. Using daily data, CDS premiums and Emerging Market Bond Index (EMBI) are examined over the period 1, January 2001- 20, June 2012. Firstly, the short-run and long-run determinants of CDS premiums are compared with those of EMBI, employing the Autoregressive Distributed Lag (ARDL) bounds testing approach. Then, the basis, the difference between CDS and EMBI spreads is analyzed seeking the factors which drive the two markets apart. Empirical results reveal that the CDS and bond market price credit events differently and hence, two spreads deviates in the short run. On the other hand, cointegration analysis shows that two prices move together in the long run, as theory predicts. Applying VECM analysis, the findings suggest that CDS spreads move ahead of the EMBI in the terms of price adjustment.
Subject Keywords
Credit analysis
,
Credit scoring systems
,
Derivative securities
,
Financial instruments
URI
http://etd.lib.metu.edu.tr/upload/12615677/index.pdf
https://hdl.handle.net/11511/22503
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Graduate School of Social Sciences, Thesis
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A. Aslan, “Pricing of sovereign credit risk : application to Turkey ,” M.S. - Master of Science, Middle East Technical University, 2013.
