Modelling Sovereign Credit Risk: Binomial Approach

[EN] The global financial crisis has demonstrated the importance of measurement and monitoring of credit risk due to close links between financial instruments and economic agents. In this regard, the most popular pure credit risk derivative is credit default swap, which allows timely and up-to-date assessment of creditworthiness of reference entities. This study presents an approach to obtain practical and reliable market based credit risk indicators based on the observed prices of credit default swaps for Turkish hard currency sovereign bonds through binomial modelling. Model outputs in terms of default probabilities enable market participants to track the changes in market view of creditworthiness of Turkey across different maturities on a daily basis in response to global and local macroeconomic developments. The empirical findings show that conditional default probabilities are higher in general for longer maturities as compared to probabilities belonging to shorter maturities. However, it has been observed that the relation might be reversed during periods of high volatility in financial markets such as August 2018. This is the period where CDS curve was inverted and the likelihood of default was deemed to be more probable in the short run as compared to longer maturities. However, the inversion of implied conditional default probabilities tended to be short lived and with the normalization of market conditions, the risks receded across all maturities, most notably in the short term. [TR] Kuresel finansal kriz, finansal urunler ve ekonomik birimler arasindaki yakin iliski dolayisiyla kredi riskinin olcumu ve takibinin onemini ortaya koymustur. Bu baglamda, kredi temerrut takasi referans kurumlarin kredi degerliligine dair zamanli ve piyasa bazli degerlendirmeleri yansitmasi acisindan en populer turev urun olarak on plana cikmaktadir. Bu calisma, binom modeli ile Turkiye'nin yabanci para cinsi tahvilleri uzerine yazilan kredi temerrut takasi primlerini kullanarak piyasa bazli pratik ve guvenilir kredi risk gostergeleri elde edilmesine yonelik bir yaklasim sunmaktadir. Temerrut olasiliklari seklinde elde edilen model sonuclari piyasa katilimcilarinin gunluk bazda Turkiye'nin yerel ve kuresel makroekonomik gelismeler neticesinde kredi degerliligindeki degisimleri farkli vadeler icin takip etmesini mumkun kilmaktadir. Ampirik bulgular kosullu kredi temerrut olasiliklarinin genel olarak uzun vadelerde kisa vadelere kiyasla yuksek seyrettigine isaret etmektedir. Ancak, soz konusu durum finansal piyasalarda yuksek oynakligin gozlendigi 2018 Agustos ayinda oldugu gibi bazi donemlerde gelismelere bagli olarak degisebilmektedir. Bu donemde, kredi temerrut egrisi ters egime sahip bir seyir izlerken, temerrut gerceklesme ihtimali kisa vadelerde uzun vadelere kiyasla daha yuksek olarak degerlendirilmektedir. Ote yandan, ima edilen kosullu temerrut olasiliklarindaki terse donme hareketinin kisa sureli oldugu ve izleyen donemde piyasa kosullarindaki normallesmeyle beraber risklerin kisa vadelerde daha belirgin olmak uzere tum vadelerde geriledigi gozlenmistir.