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Interest rate, liquidity, and sovereign risk: derivative-based VaR

2017Journal article Restricted access
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dc.contributor.authorGubareva, Mariya
dc.contributor.authorBorges, Maria Rosa
dc.date.accessioned2018-07-05T07:43:47Z
dc.date.available2019-01-01T01:30:10Z
dc.date.issued2017
dc.descriptionResearch paperpt_PT
dc.description.abstractPurpose – The purpose of this paper is to study connections between interest rate risk and credit risk and investigate the inter-risk diversification benefit due to the joint consideration of these risks in the banking book containing sovereign debt. Design/methodology/approach – The paper develops the historical derivative-based value at risk (VaR) for assessing the downside risk of a sovereign debt portfolio through the integrated treatment of interest rate and credit risks. The credit default swaps spreads and the fixed-leg rates of interest rate swap are used as proxies for credit risk and interest rate risk, respectively. Findings – The proposed methodology is applied to the decade-long history of emerging markets sovereign debt. The empirical analysis demonstrates that the diversified VaR benefits from imperfect correlation between the risk factors. Sovereign risks of non-core emu states and oil producing countries are discussed through the prism of VaR metrics. Practical implications – The proposed approach offers a clue for improving risk management in regards to banking books containing government bonds. It could be applied to access the riskiness of investment portfolios containing the wider spectrum of assets beyond the sovereign debt. The approach represents a useful tool for investigating interest rate and credit risk interrelation. Originality/value – The proposed enhancement of the traditional historical VaR is twofold: usage of derivative instruments’ quotes and simultaneous consideration of the interest rate and credit risk factors to construct the hypothetical liquidity-free bond yield, which allows to distil liquidity premium.pt_PT
dc.description.versioninfo:eu-repo/semantics/publishedVersionpt_PT
dc.identifier.urihttp://hdl.handle.net/10400.21/8657
dc.language.isoengpt_PT
dc.peerreviewedyespt_PT
dc.publisherEmeraldpt_PT
dc.relationFinanciado pela FCT (Fundação para a Ciência e a Tecnologia), Portugal - Strategic Project (UID/ECO/00436/2013).pt_PT
dc.relationProjecto financiado no âmbito da 1ª edição do concurso de Projectos de Investigação, Desenvolvimento, Inovação & Criação Artística (IDI&CA) financiados pelo Instituto Politécnico de Lisboa. IPL/2016/MacroModel/ISCALpt_PT
dc.relationProjecto financiado no âmbito da 2ª edição do concurso de Projectos de Investigação, Desenvolvimento, Inovação & Criação Artística (IDI&CA) financiados pelo Instituto Politécnico de Lisboa. IPL/2017/MacroTools/ISCAL
dc.relation.ispartofseries;4
dc.relation.publisherversionhttp://www.emeraldinsight.com/doi/full/10.1108/JRF-01-2017-0018pt_PT
dc.subjectLiquidity riskpt_PT
dc.subjectEmerging marketspt_PT
dc.subjectInterest ratept_PT
dc.subjectDiversification benefitpt_PT
dc.subjectDiversified VaRpt_PT
dc.subjectSovereign debtpt_PT
dc.subjectIPL/2016/MacroModel/ISCAL
dc.subjectIPL/2017/MacroTools/ISCAL
dc.titleInterest rate, liquidity, and sovereign risk: derivative-based VaRpt_PT
dc.typejournal article
dspace.entity.typePublication
oaire.citation.endPage465pt_PT
oaire.citation.startPage443pt_PT
oaire.citation.titleThe Journal of Risk Financept_PT
oaire.citation.volume18pt_PT
person.familyNameGubareva
person.familyNameBorges
person.givenNameMariya
person.givenNameMaria Rosa
person.identifier.ciencia-id311F-E7AA-AAAA
person.identifier.ciencia-idF916-94DC-E0BC
person.identifier.orcid0000-0001-6829-7021
person.identifier.orcid0000-0001-5340-471X
person.identifier.ridY-8520-2018
person.identifier.ridC-7946-2009
person.identifier.scopus-author-id56850438400
person.identifier.scopus-author-id8581988500
rcaap.rightsrestrictedAccesspt_PT
rcaap.typearticlept_PT
relation.isAuthorOfPublicationd6c8e85f-b262-4905-9380-4469f62011ed
relation.isAuthorOfPublicationa6bb0845-89fc-43a6-97d3-87ed5fcd10de
relation.isAuthorOfPublication.latestForDiscoverya6bb0845-89fc-43a6-97d3-87ed5fcd10de

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