A Merton approach to transfer risk
Transfer risk is the risk that debtors in a country are unable to ensure timely payments of foreign currency debt service due to transfer or exchange restrictions, or a general lack of foreign currency. Although this risk is not extensively addressed in the revised Basel II framework, it is a major source of risk in international lending. Marco van der Burgt presents a metric for transfer risk, based on the Merton approach. A distance-to-transfer event is defined as an analogue of the distance-to-default definition of the Merton model
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