The Global Financial Crisis that started in 2008 transformed into sovereign debt crises in many countries. The debt overhang problem remains deep in advanced countries. A further and rapidly increasing concern to international lenders and investors is the potentially adverse effect of volatile commodity markets and political upheavals on the economic health of commodity producing and less developed countries. These developments have lead to a increased need for effective methods and tools for measuring and managing country risk and sovereign credit risk.
The purpose of this seminar is to give you a good a good and practical understanding of methods and tools for effectively measuring and managing country risk and sovereign credit risk.
We start with a general introduction to country and sovereign risk. We define the concepts "country risk" and "sovereign risk", and we explain the sources of these risk. We also give an overview of the role that country and sovereign risks have played in the current and historical financial crises (such as the Asian currency Crisis).
We then look at the economic and financial foundations of country risk assessment. We explain the debt dynamics and "events" such as debt restructuring, debt moratorium, and currency devaluation.
Further, we present and explain a number of country risk assessment methodologies, including the analysis of socioeconomic, fiscal and monetary variables. We also discuss how country and sovereign risks are reflected in country and sovereign credit risk ratings. We give examples of country and sovereign debt ratings and we discuss their impact on sovereign debt markets. We present some quantitative risk models for quantifying country and sovereign risk and explain how these models can be used in practice for calculating "Country VaR" and other risk measures.
Further, we look at the investment implications of country and sovereign risk. We explain how sovereign debt instruments affect the risk-return characteristics of an investment portfolio, and we demonstrate how to construct optimal portfolios that include government bonds.
Finally, we present and explain a number of tools for mitigating country and sovereign risk, including the use of national and multinational guarantees, restructuring strategies, future flow securitizations, and risk transfer with sovereign credit derivates.