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Pricing Sovereign Credit Risk of Poland: Evidence from the CDS Market

Author

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  • Gonzalo Camba-Méndez
  • Konrad Kostrzewa
  • Anna Marszal
  • Dobromił Serwa
Abstract
We analyze the market assessment of sovereign credit risk using a reduced-form model to price the credit default swap (CDS) spreads, thus enabling us to derive values for the probability of default (PD) and loss given default (LGD) from the quotes of sovereign CDS contracts. We compare different specifications of the models allowing for both fixed and time-varying LGD, and we use these values to analyze the sovereign credit risk of Polish debt throughout the period of a global financial crisis. Our results suggest the presence of a low LGD and a relatively high PD during a recent financial crisis.

Suggested Citation

  • Gonzalo Camba-Méndez & Konrad Kostrzewa & Anna Marszal & Dobromił Serwa, 2016. "Pricing Sovereign Credit Risk of Poland: Evidence from the CDS Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(12), pages 2687-2705, December.
    • Handle: RePEc:mes:emfitr:v:52:y:2016:i:12:p:2687-2705
    DOI: 10.1080/1540496X.2016.1216935
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    Cited by:

    1. Li, Aimin & Li, Zhiyong & Bellotti, Anthony, 2023. "Predicting loss given default of unsecured consumer loans with time-varying survival scores," Pacific-Basin Finance Journal, Elsevier, vol. 78(C).

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