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Determinants of Sovereign Risk Valuation in Emerging European Countries

ФИО студента: Alexey Kornev

Руководитель: Dmitriy Alexandrovich Kachalov

Кампус/факультет: International College of Economics and Finance

Программа: Double degree programme in Economics of the NRU HSE and the University of London (Bachelor)

Год защиты: 2016

The paper focuses on the analysis of factors that determine the sovereign risk premium and expected losses component for the number of emerging European countries selected. Study is based on the decoupling the credit default swap spread into those two components. The risk premium is calculated through the difference between the logarithmic CDS spread and modelled results of the expected losses. Work implements transformation techniques that are used in other papers and delivered statistically significant and evident modelling results. It also provides some minor adjustments to the commonly accepted valuation methodologies. Work proposes a large amount of variables that theoretically should be able to describe and model expected losses and risk premium. The split credit ratings’ grades were used as a source to obtain the expected losses values. Variables under considerations can be separated into two main groups namely: the global and domestic fundamentals. Its’ values are analyzed as well as the expected losses. The study is aimed to answer a number of important questions. Are the presented transformation methods still applicable for risk premium analysis? What group of factors can describe the risk premium and expected losses? What expected losses valuation method provides better results? Panel data analysis for seven European emerging countries was implemented, in order to answer the questions indicated above. Received results support some of the formerly used methodologies; however, some of the models contradict with previously significant models.

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