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This paper proposes
the creation of a Sovereign Borrowing Entity (SBE) under the auspices of the
International Monetary Fund (IMF) and other International Financial
Institutions (IFIs). The SBE guarantees bond issuances by developing nations,
packages them in relatively small denominations, and auctions them to the
public. Should a developing debtor country fail to pay its debt, the SBE would raise
funds through a punitive tariff on all exports administered by the IMF member
nations. We develop a theoretical model of the proposed Sovereign Borrowing
Entity (SBE) and provide viability evidence using export and debt data from the
World Bank. It is our hope that this paper will encourage further dialogue and
research on financing developing country debt in a more effective manner.
KMV model is one of
the most important credit risk evaluation models in the world. It uses B-S option
pricing and Morton formula based on the market value and volatility of the
company’s equity, debt maturities, risk-free interest rates and the book value
of liabilities to estimate the market value of the company’s assets and the
volatility of the asset value. In this paper, based on the theory of KMV model,
we can derive the listed company’s default rate, and assess credit risk. And
the result is reasonable.
This paper discusses the pricing problem of credit default swap in the fractional Brownian motion environment. As credit default swap is exposed to both the interest rate risk and the default risk, we assume that the default intensity of a firm depends on the stochastic interest rate and the default states of counterparty firms. The interest rate risk is reflected by the fractional Vasicek interest rate model. We model the firm’s default intensity under the looping default model and derive the pricing formulas of risky bonds and credit default swap.