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A Primer for Risk Measurement of Bonded Debt from the Perspective of a Sovereign Debt Manager
Company: International Monetary Fund
Company Url: Click here to open
Year Of Publication: 2006
Month Of Publication: August
Pages: 49
Download Count: 409
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Comment Num: 0
Language: EN
Source:
Who Can Read: Free
Date: 3-17-2007
Publisher: Administrator
Summary
This paper presents some conventional and new measures of market, credit, and liquidityrisks for government bonds. These measures are analyzed from the perspective of asovereign’s debt manager. In particular, it examines duration, convexity, M-square,skewness, kurtosis, and VaR statistics as measures of interest rate exposure; a VaR statisticas the prominent measure of exchange rate exposure; the balance sheet approach (orcontingent claims approach), and its consequent probability of default as the most promisingmeasure of credit risk exposure; and an elasticity approach and a VaR statistic to measureliquidity risk. Along with the formulas for the various statistics proposed, we provide simpleexamples of their application to some common risk valuation cases. Finally, we present anintegrated approach for the simultaneous estimation of a portfolio’s interest rate andexchange rate risk using the VaR methodology. The integrated approach is then extended toalso include N risk factors. This approach allows us to measure the total risk of a portfolio,provided that the volatilities and correlations among the risk factors can be estimate
Author(s)
Papaioannou, Michael Sign in to follow this author
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