| Title: |
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The sovereign default puzzle: Modelling issues and lessons for Europe |
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| Author(s): |
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Daniel Cohen 1, 2, Sébastien Villemot 1, 2 |
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| Laboratory: |
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| Fulltext language: |
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English |
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| Production date: |
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2012-04 |
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| Abstract: |
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Why do countries default? this seemingly simple question has yet to be adequately answered in the literature. Indeed, prevailing modelling strategies compel the to choose between two enappealing model features: depending on the cost of default selected by the modeler, either the debt ratios are too high and the probability of default is toot low or the opposite is true. In view of the historical evidence that countries always default is too low or crisis, we propose a novel approach to the theory of debt default and develop a model that matches the key stylized facts regarding sovereign risk. |
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| Publication type: |
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Preprint, Working Paper, ... |
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| Subject: |
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Humanities and Social Sciences/Economy and finances
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| Keyword(s): |
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Sovereign debt – Lévy stochastic processes |
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| JEL Classification: |
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F - International Economics/F3 - International Finance/F34 - International Lending and Debt Problems |
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| Internal note: |
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PSE Working Papers n°2012-21 |
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