Modeling Sovereign Yield Spreads: A Case Study of Russian Debt

Posted: 31 Aug 2003

See all articles by Darrell Duffie

Darrell Duffie

Stanford University - Graduate School of Business; National Bureau of Economic Research (NBER); Canadian Derivatives Institute

Lasse Heje Pedersen

AQR Capital Management, LLC; Copenhagen Business School - Department of Finance; New York University (NYU); Centre for Economic Policy Research (CEPR)

Kenneth J. Singleton

Stanford University - Graduate School of Business

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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.

Suggested Citation

Duffie, James Darrell and Pedersen, Lasse Heje and Singleton, Kenneth J., Modeling Sovereign Yield Spreads: A Case Study of Russian Debt. Available at SSRN: https://ssrn.com/abstract=377110

James Darrell Duffie (Contact Author)

Stanford University - Graduate School of Business ( email )

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Canadian Derivatives Institute ( email )

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Lasse Heje Pedersen

AQR Capital Management, LLC ( email )

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Copenhagen Business School - Department of Finance ( email )

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New York University (NYU) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Kenneth J. Singleton

Stanford University - Graduate School of Business ( email )

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