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A unified model that consistently evaluates sovereign quanto credit default swap (CDS) and government bonds is developed. By product, a new procedure is proposed to calibrate stochastic processes of the risk-free interest rate and the sovereign default intensity to sovereign quanto CDS spreads and government bond yields. Fractional step methods are applied to solve partial differential equations for CDS spreads and bond yields, which cannot be solved using a standard finite difference method due to a cross derivative term. An empirical study is conducted on United States, German and Portuguese quanto CDS spreads during the European sovereign debt crisis. The stochastic processes of the riskfree interest rates in USD and Euros and the default intensities of United States, German and Portuguese are simultaneously estimated and reveals that sovereign quanto CDS spread differentials are partially explained by introducing a correlation between the risk-free interest rate and the sovereign default intensity. Numerical analysis shows that the larger correlation between them leads to the smaller CDS spread.
論文
Articles
JEL classifications: G12, G13, G15
identifier:http://repository.musashi.ac.jp/dspace/handle/11149/2471
収録刊行物
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- 武蔵大学論集 : The Journal of Musashi University
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武蔵大学論集 : The Journal of Musashi University 70 (2,3,4), 11-22, 2023-03-24
武蔵大学経済学会
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詳細情報 詳細情報について
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- CRID
- 1050014648078221568
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- NII書誌ID
- AN00237878
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- ISSN
- 02871181
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- NDL書誌ID
- 032844040
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- 本文言語コード
- en
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- 資料種別
- departmental bulletin paper
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- データソース種別
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- IRDB
- NDL