Three essays on the Euro-Zone sovereign debt
- Autores: Yao Peng
- Directores de la Tesis: Alejandro Balbás de la Corte (dir. tes.)
- Lectura: En la Universidad Carlos III de Madrid ( España ) en 2015
- Idioma: inglés
- Tribunal Calificador de la Tesis: Eliseo Navarro Arribas (presid.), Silvia Mayoral Blaya (secret.), Antonio Díaz Pérez (voc.)
- Materias:
- Enlaces
- Resumen
My PhD thesis consists of three chapters on the Euro-Zone sovereign bond market due to the quick spread of sovereign risk in European countries. In chapter 1, we examine the European bond market efficiency by developing a mathematical programing approach, in order to measure the arbitrage size. Transaction costs may be incorporated. The obtained arbitrage measures have two interesting interpretations: On the one hand they provide the highest available arbitrage profit with respect to the price of the sold (bought) securities. On the other hand they give the minimum relative (per dollar) bid (ask) price modification leading to an arbitrage free market. Moreover, some primal problems lead to optimal arbitrage strategies (if available), while their dual problems generate proxies for the Term Structure of Interest Rates. The developed methodology permits us to implement an empirical test in the Euro-zone during the Euro crisis. Classical literature justifies the relevance of empirical analyses verifying the degree of efficiency during market turmoils. Our empirical study of the German, French and Spanish sovereign bonds markets finds that the main arbitrage opportunities come from the price differences between maturity-matched strips or “On-The-Run Premium” for zero-coupon bonds. When we remove the strips and the zero-coupon bonds the arbitrage still exists in the Spanish market. Although we cannot reject the existence of the arbitrage in European bond market, in order to provide a general pricing rule we assume that the market is efficient. In chapter 2, we propose a general pricing methodology for completing the European sovereign bond market due to the existence of unreplicable bonds such as a forthcoming jointguaranteed ’Eurobonds’. To find the optimal EMM, we introduce ’Ambiguity’ in our pricing framework to describe the underlying state probability, and we also consider the worst-case Conditional Value-at-Risk to measure the hedging risk. The minimization of the worst-case CVaR of hedging residual risk associated with an uncertain probability set is investigated. We transform the optimization problem into a convex and linear program which gives the robust bid-ask prices, the hedging portfolio and a risk neutral measure. In the numerical analysis, several synthetic sovereign bonds are created for imitating the performance of Eurobonds since it does not exist. In chapter 3, we focus on assessing the sovereign risk dependence of European sovereign bonds, based on the worst case analysis. With this analysis, we can also provide a robust optimal portfolio composed of sovereign bonds in the safe and the periphery countries. With uncertain state probability distribution, we adopt a robust Conditional Value at Risk (RCVaR) in the risk-return tradeoff analysis. The empirical results show that a default in a safe country significantly affects the default in periphery countries and the interaction of default risk among periphery countries are strikingly high. Moreover, the robust optimal portfolio performs stably even in the period with the highest risk and the weights in risky countries are significantly greater than zero, which indirectly implies an overpriced-risk in periphery countries
