Currency Mismatches and Corporate Default Risk: Modeling, Measurement, and Surveillance Applications
IMF Working Papers, December 1, 2006
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- Currency Mismatches and Corporate Default Risk: Modeling, Measurement, and Surveillance Applications
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Bibliographic details
- Authors: Andre O Santos, Jorge A Chan-Lau
- Published: December 1, 2006
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451865295.001
Summary
- Currency mismatches in corporate balance sheets have been singled out as an important factor underlying the severity of recent financial crises.
- The paper proposes several structural models for measuring default risk for firms with currency mismatches in their asset/liability structure.
- The proposed models:
- can be adapted to different exchange rate regimes,
- are analytically tractable, and
- can be estimated using available equity price and balance sheet data.
- The paper provides a detailed explanation on how to calibrate the models.
- Two applications to financial surveillance are discussed:
- the measurement of systematic risk in the corporate sector, and
- the estimation of prudential leverage ratios consistent with regulatory capital ratios in the banking sector.
Modeling and Measurement
- Structural models are developed specifically to account for firms with currency mismatches in assets and liabilities.
- Models are adaptable to different exchange rate regimes.
- Models are analytically tractable.
- Estimation is feasible using available equity price and balance sheet data.
- The paper includes a detailed calibration methodology.
Surveillance Applications and Policy-Relevant Uses
- Measurement of systematic risk in the corporate sector.
- Estimation of prudential leverage ratios consistent with regulatory capital ratios in the banking sector.
- These applications are presented as tools for financial surveillance related to currency mismatch–driven default risk.
Publication and Metadata
- Authors: Andre O Santos, Jorge A Chan-Lau
- Date: December 1, 2006
- Pages: 30
- Volume: 2006
- Issue: 269
- Series: Working Paper No. 2006/269
- DOI: https://doi.org/10.5089/9781451865295.001
- Stock No: WPIEA2006269
- ISBN: 9781451865295
- ISSN: 1018-5941
- Subjects: Asset valuation, Currencies, Currency mismatches, Debt default, Exchange rates
- Keywords: exchange rate, foreign currency, WP
Andre O Santos, and Jorge A Chan-Lau. "Currency Mismatches and Corporate Default Risk: Modeling, Measurement, and Surveillance Applications", IMF Working Papers 2006, 269 (2006), December 1, 2006.