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Panda bonds: opportunity or threat for Europe?

Patrizia Stucchi

Abstract


We analyse the effect of panda bonds on indebted firms default probability. The theoretical default probability as a function of debt is evaluated in the Black, Scholes (1973) and Merton (1974) framework for various set of parameters values. We consider as benchmark the prevailing default rates for speculative-grade corporate companies based on the last reports by S&P (2019) and Moody’s (2018).

Keywords


Capital structure, Credit risk, Bond markets, Chinese internationalization

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References


Black F, Scholes M (1973). The Pricing of Options and Corporate Liabilities. The Journal of Political Economy, 81-3: 637-654

CDP (2019) Cassa depositi e prestiti and Bank of China: a partnership agreement to contribute to the growth of Italian enterprises in China,

https://www.cdp.it/resources/cms/documents/Comunicato_n._18_del_23_03_2019_MoU_CDP_BoC.pdf

GlobalCapital (2019). The New EUROWEEK, Euromoney Institutional Investor PLC,

https://www.globalcapital.com/rmb/data/panda-bond-database

Merton RC (1974). On the Pricing of Corporate Debt: the Risk Structure of Interest Rates. Journal of Finance 29: 449-470

Moody’s (2018). Annual Default Study: Corporate Default and Recovery Rates, 1920 - 2017

https://www.researchpool.com/download/?report_id=1751185&show_pdf_data=true

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Standard & Poor’s (2019). 2018 Annual Global Corporate Default And Rating Transition Study, https://www.spratings.com/documents/20184/774196/2018AnnualGlobalCorporateDefaultAndRatingTransitionStudy.pdf




DOI: https://doi.org/10.14665/1614-4007-26-2-006

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