Credit derivatives and sovereign debt
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Authors
Goderis, Benedikt
Wagner, Wolf
Publication Date
2005-10Series
CFAP Working Paper
23
Publisher
CFAP, Cambridge Judge Business School, University of Cambridge
Language
English
Type
Working Paper
Metadata
Show full item recordCitation
Goderis, B., & Wagner, W. (2005). Credit derivatives and sovereign debt. http://www.dspace.cam.ac.uk/handle/1810/225157
Abstract
We study the introduction of credit protection on sovereign debt. We find that such protection reduces debtor moral hazard by allowing a bonghokder to improve his position in negotiations with the sovereign. Moreover, equilibrium credit protection does not reduce the efficiency of crisis resolution. We even identify situations where protection facilitates conditionality in crisis resolution. Neverlesless, we show that a bondholder's choice of protection is not always socially optimal. Crisis resolution can then be improved through increasing protection.
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This record's URL: http://www.dspace.cam.ac.uk/handle/1810/225157
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