Paper Title :A Structural Approach for Integrating the Default-Risk of Fixed Income Securities in Economic Scenario Generators
Author :Eric Dei Ofosu-Hene
Article Citation :Eric Dei Ofosu-Hene ,
(2017 ) " A Structural Approach for Integrating the Default-Risk of Fixed Income Securities in Economic Scenario Generators " ,
International Journal of Management and Applied Science (IJMAS) ,
pp. 21-29,
Volume-3,Issue-8
Abstract : Previous studies on stochastic asset models have ignored the default-risk of fixed income securities. However
developments in the global financial markets indicate thatsovereign bonds, domestic government and corporate bonds carry
significant credit risk and that a risk-free domestic government debt which guarantees a rate of return is unavailable. In this
paper we examine the effects of varying the default-probability onthe return dynamics of domestic government debt using an
economic scenario generator. We provide the implications of ignoring the default-probability of fixed income securities,
taking Ghana as an example. The analysis via a multi-period asset projection model and under a CAPM framework indicates
that ignoring the default probability of fixed income securities in general can lead to serious underestimation of portfolio
risks.
Keywords: Economic Scenario Generator, CAPM, Default-Risk, Domestic Government bonds, Ghana, Credit Risk, Market
Risk, Multivariate Lognormal Model.
Type : Research paper
Published : Volume-3,Issue-8
DOIONLINE NO - IJMAS-IRAJ-DOIONLINE-8851
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Copyright: © Institute of Research and Journals
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Published on 2017-10-20 |
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