Country and Sovereign Risk: Analysis, Rating and Risk Management

Tuesday, December 11

09.00 - 09.15 Welcome and Introduction

09.15 - 12.00 Financial Crises, Country Risk and Sovereign Default Risk

• Country and Sovereign Risk: Definitions, Terminology, Sources of Risk
• The European Debt Crisis and the Future of the Euro
• Sovereign Debt Crises – the Historical Perspective
• Solving Debt Crises – Debt Reduction Strategies and Instruments

Economic and Financial Foundations of Country Risk Assessment

• Country Debt Dynamics
• Near- Medium and Long Term Fiscal Outlooks
• Default/Moratorium/Restructuring
• Devaluation
  • Relative price effects
  • Income effects
  • Stock adjustments
  • Country Risk Ratios

12.00 - 13.00 Lunch

13.00 - 16.30 Country Risk Assessment Methodologies

• Welfare and Social Indicators
• Macroeconomic Structures of Growth
• External Indebtedness, Liquidity and Solvency
• The Savings-Investment Gap and Domestic Financial Intermediation
• Growth, Crisis and Governance
• Case Study and Small Exercise

Country and Sovereign Ratings and their Interpretations

• Global Country Risk Ratings
  • Specialized ranking firms
  • Export credit agencies
  • Global country risk ranking methods
• Country (Sovereign) Credit Risk Ratings
  • The methodologies of major credit rating agencies (Moody’s, S&P and Fitch)
  • Sovereign debt ratings and their interpretations
  • The impact of ratings on sovereign bond markets (spreads etc.)
• Case Study and Small Exercise

Wednesday, December 12

09.00 - 09.15 Brief Recap

09.15 - 12.00 Quantitative Risk Models for Country and Sovereign Risk

• Econometric and Mathematical Models
• Value-at-Risk
• Principal Components Analysis
• Models for Assessment of Credit Risk
  • Probabilities of default using historical data
  • Probabilities of default using credit spreads
  • CountryMetrics
  • Loss given default and credit VaR
  • Incorporating correlation and contagion
• Case Study and Small Exercise

International Portfolio Investment Analysis

• Investment Risk
  • The Macro CAPM
  • Measuring political risk as an insurance premium
• International Portfolio and Country Risk Management
  • The impact of country risk on international portfolio investment
  • The International Capital Asset Pricing Model (ICAPM)
  • Limitations of the ICAPM
• Case Study and Small Exercise

12.00 - 13.00 Lunch

13.00 - 16.30 Hedging Country and Sovereign Risk

• Overview of Country and Sovereign Risk Mitigation Instruments
• National Export Credit Agencies
• Multilateral Risk Guarantee Institutions
• Public and private risk guarantee institutions
• The Market Based Approach
• Using Project Finance and Future Flow Securitizations to Mitigate Country Risk
• Hedging Sovereign Risk with Credit Derivatives
• Regulatory Aspects (Basel III, Solvency II etc.)
• Case Study and Small Exercise

Evaluation and Termination of the Seminar