## The Premia on State-Contingent Sovereign Debt Instruments

_IMF Working Papers, December 3, 2021_

## Source details

**Canonical URL:** [The Premia on State-Contingent Sovereign Debt Instruments](https://www.imf.org/en/publications/wp/issues/2021/12/03/the-premia-on-state-contingent-sovereign-debt-instruments-510780)

## Other formats

- [Markdown version](/en/publications/wp/issues/2021/12/03/the-premia-on-state-contingent-sovereign-debt-instruments-510780/index.md)
- [Structured JSON version](/en/publications/wp/issues/2021/12/03/the-premia-on-state-contingent-sovereign-debt-instruments-510780/index.json)
- [Bundle manifest](/en/publications/wp/issues/2021/12/03/the-premia-on-state-contingent-sovereign-debt-instruments-510780/bundle-manifest.json)

## Bibliographic details
- Authors: Deniz O Igan, Taehoon Kim, Antoine Levy
- Published: December 3, 2021
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781616357009.001

---

### Overview
- Authors: Deniz O Igan, Taehoon Kim, Antoine Levy
- Publication date: December 3, 2021
- Paper type: IMF Working Papers, Working Paper No. 2021/282
- Core focus: Estimation of the time-varying risk premium of state-contingent sovereign debt instruments, with application to GDP-linked warrants issued by Argentina, Greece, and Ukraine.

### Key findings (stylized facts)
- The paper applies a general framework to estimate the time-varying risk premium of a state-contingent sovereign debt instrument and reports three stylized facts:
  - (i) the risk premium in state-contingent instruments is high and persistent;
  - (ii) the risk premium exhibits a pro-cyclical pattern;
  - (iii) the liquidity premium is higher and more volatile than that for plain-vanilla government bonds issued by the same sovereign.

### Methodology and empirical scope
- Developed a general framework to estimate time-varying risk premia for state-contingent sovereign debt instruments.
- Empirical application: GDP-linked warrants issued by Argentina, Greece, and Ukraine.
- Emphasis on decomposing premia into risk premium and liquidity premium components and characterizing their dynamics over the business cycle.

### Model and interpretation
- Presents a model in which investors fear ambiguity.
- The ambiguity-averse investor model can account for the observed cyclical properties of the risk premium (including pro-cyclicality and persistence).

### Subject coverage and keywords
- Subjects: Asset and liability management, Bonds, Debt restructuring, Financial institutions, Liquidity, Securities, Sovereign bonds
- Keywords: Bonds, Debt restructuring, estimation framework, GDP-linked warrant, GDP-linked warrants, Global, Liquidity, liquidity premium, Procyclicality, Risk premia, SCDI premium, Securities, Sovereign bonds, State-contingent debt instruments

---

## Content in this bundle

- **Working Paper**
  - [Working Paper (Markdown version)](/-/media/files/publications/wp/2021/english/wpiea2021282-print-pdf.pdf.md){rel="alternate" type="text/markdown"}
  - [Working Paper (PDF)](/-/media/files/publications/wp/2021/english/wpiea2021282-print-pdf.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2021/12/03/the-premia-on-state-contingent-sovereign-debt-instruments-510780_