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Contagion and bond pricing: The case of the ASEAN region

Author

Listed:
  • Ilyes Abid
  • Abderrazak Dhaoui
  • Stéphane Goutte

    (LED - Laboratoire d'Economie Dionysien - UP8 - Université Paris 8 Vincennes-Saint-Denis)

  • Khaled Guesmi

    (IPAG Paris - IPAG Paris)

Abstract
In this paper, we obtain explicit numerical formulas to price the defaultable bonds prices of firms. The possible default event of the firms happen in random time and not necessary in uniform time spread. For this purpose, we develop a Markov regime-switching Copula model that allows us to well-capture the economic behavior in some ASEAN region countries. The first regime represents the evidence that is used to support the standard economy. The second regime represents the crisis state. Based on various specifications, we obtain an explicit formula to evaluate the conditional Laplace transform of a regime switching Cox Ingersoll Ross model using the semi-affine property of this model. Our numerical results show strong evidence for increasing volatility parameter in crisis state, suggesting more possibility of contagion. Furthermore, statistically significant differences in terms of volatility of default across countries are reported. Indonesia and Malaysia exhibit particularly higher volatility than other markets, especially in the crisis state.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Ilyes Abid & Abderrazak Dhaoui & Stéphane Goutte & Khaled Guesmi, 2019. "Contagion and bond pricing: The case of the ASEAN region," Post-Print halshs-02148928, HAL.
    • Handle: RePEc:hal:journl:halshs-02148928
    DOI: 10.1016/j.ribaf.2018.08.010
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    as
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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • G01 - Financial Economics - - General - - - Financial Crises
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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