RT Journal Article SR Electronic T1 Forecasting Sovereign Default Risk with Merton’s Model JF The Journal of Fixed Income FD Institutional Investor Journals SP 58 OP 71 DO 10.3905/jfi.2015.25.2.058 VO 25 IS 2 A1 Johan Duyvesteyn A1 Martin Martens YR 2015 UL https://pm-research.com/content/25/2/58.abstract AB Merton’s structural model for sovereigns is proven to be useful to analyze the default risk of a country. We are the first to investigate how fast CDS spreads react to changes in model inputs and outputs. CDS spread changes strongly correlate with exchange rate returns, which are an input to the model. But CDS spread changes on average react with a delay to changes in model outputs such as the distance to default, the default probability, and model spreads. Hence, contingency claim analysis for sovereigns provides useful predictions for CDS spreads.TOPICS: Fixed income and structured finance, credit default swaps