FIN-01-021

Modeling Sovereign Yield Spreads: A Case Study of Russian Debt

September 24, 2001

Darrell Duffie, Lasse Heje Pedersen and Kenneth J. Singleton

ABSTRACT

We construct a model for pricing sovereign debt that accounts for the risks of both default and restructuring, and allows for compensation for illiquidity. Using a new and relatively efficient method,we estimate the model using Russian dollar-denominated bonds. We consider the determinants of the Russian yield spread, the yield differential across different Russian bonds, and the implications for market integration, relative liquidity, relative expected recovery rates, and implied expectations of different default scenarios.

Subject categories: International Finance, Investment/Fixed Income, Valuation
Classification: empirical, theoretical

Darrell Duffie
Institution: Graduate School of Business, Stanford University, Stanford, CA 94305-5015
Telephone: 650 723 1976
Email: duffie@stanford.edu

Lasse Heje Pedersen
Institution: Stern School of Business, New York University, 44th West 4th Street, New York, NY 10012
Telephone: (212) 998-0359
Fax: (212) 995-4233
Email: lpederse@stern.nyu.edu
Homepage:http://www.stern.nyu.edu/~lpederse

Kenneth J. Singleton
Institution: Graduate School of Business, Stanford University, Stanford, CA 94305-5015
Telephone: 650 723 5753
Email: ken@future.stanford.edu

To download a copy of this paper click here
To request a copy of this paper click here

The Finance Department Working Paper Series has been generously sponsored by