Finance

Country | Risk of default

Country | Risk of default

Postby briangilbert » Sat Jul 16, 2011 1:52 pm
In the reports of the Euro's turmoil it has been mentiuoned that the risk of a country's default can be computed. This is done by comparing the interest rate for a country that is completely sound with that of the country which is doubtful. The comparison would be for bonds with the same term, that is both 5 year bonds or both 2 year bonds.

In effect the lender aims to regain in interest the amount it would lose in capital in the event of a default.

I guess it would be something like this:-

(((Unsafe country interest rate)-(Safe ountry interest rate))/100)*(Bond term in years)

Does anyone know the actual formula used?

I can then do a widget to compute the risk of default for any country.
briangilbert
 
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Re: Country | Risk of default

Postby Brightside » Wed Jul 20, 2011 12:10 pm
Brian, I think you'll find something on implied probabilities here: http://faculty.virginia.edu/wei_li/em/j ... t-prob.pdf

If you have anything else I would love to know about it. Perhaps we can even ask W|A to add it as a feature.
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Re: Country | Risk of default

Postby briangilbert » Wed Jul 20, 2011 12:57 pm
Brightside wrote:Brian, I think you'll find something on implied probabilities here: http://faculty.virginia.edu/wei_li/em/j ... t-prob.pdf

If you have anything else I would love to know about it. Perhaps we can even ask W|A to add it as a feature.


Thanks. The link above does not work. Something to do with the way this forum works. You need to start on a fresh line I think to work round it.
Google came to my aid and I think ity is
*http://faculty.virginia.edu/wei_li/em/jpm-default-prob.pdf*
(I had to put the asterisks round it to stop it being abused again!)
However it is difficult to seperate the trees from the wood. Even though what I want is I think simple, they are describing it among a lot of other complex matters.I will give it a try. Thanks again.
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