## Currency Mismatches and Corporate Default Risk: Modeling, Measurement, and Surveillance Applications

_IMF Working Papers, December 1, 2006_

## Source details

**Canonical URL:** [Currency Mismatches and Corporate Default Risk: Modeling, Measurement, and Surveillance Applications](https://www.imf.org/en/publications/wp/issues/2016/12/31/currency-mismatches-and-corporate-default-risk-modeling-measurement-and-surveillance-20072)

## Other formats

- [Markdown version](/en/publications/wp/issues/2016/12/31/currency-mismatches-and-corporate-default-risk-modeling-measurement-and-surveillance-20072/index.md)
- [Structured JSON version](/en/publications/wp/issues/2016/12/31/currency-mismatches-and-corporate-default-risk-modeling-measurement-and-surveillance-20072/index.json)
- [Bundle manifest](/en/publications/wp/issues/2016/12/31/currency-mismatches-and-corporate-default-risk-modeling-measurement-and-surveillance-20072/bundle-manifest.json)

## 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.*

---

## Content in this bundle

- **_wp06269**
  - [_wp06269 (Markdown version)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2006/_wp06269.pdf.md){rel="alternate" type="text/markdown"}
  - [_wp06269 (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2006/_wp06269.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/currency-mismatches-and-corporate-default-risk-modeling-measurement-and-surveillance-20072_