A new road to recovery
There are clear inconsistencies between the theory and practice of pricing credit default swap contracts in emerging markets, argues Manmohan Singh of the International Monetary Fund. Here, he proposes an alternative method for proxying recovery value
In times of distress, when a country loses access to markets, there is evidence that credit default swap (CDS) spreads are a better indicator for sovereign risk than indexes such as the EMBI+ sub-index for the country.
However, it is not easy to discern the variables that determine the level of CDS spreads in emerging markets – traders only quote the CDS spreads and not the inputs required to
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