Credit Default Swaps in the External Public Debt Management
Lupenko A. Y.

Lupenko, Andrii Yu. (2020) “Credit Default Swaps in the External Public Debt Management.” The Problems of Economy 4:326–333.
https://doi.org/10.32983/2222-0712-2020-4-326-333

Section: Finance and banking

UDC 339.7

Abstract:
The article aims at systematizing the theoretical and methodological foundations of using credit default swaps in the external public debt management. Theoretical principles of using credit default swaps in the external public debt management are studied. The advantages and disadvantages of credit default swaps as derivative financial instruments are generalized. It is shown that the main disadvantages of credit default swaps are their speculative character and dependence on international rating agencies, as well as lack of proper regulation in the synthetic securitization of debt-based assets. The mechanism of credit default swap functioning in the risk management system in external state borrowings is conceptualized. The factors influencing the value of the credit default swap in the risk management system in external government borrowing are identified. It is shown that the main factors are the sovereign credit rating, the maturity of debt securities, liquidity and yield of external government bonds, market demand and supply of debt securities and default swaps. The dynamics of the value of credit default swaps on Ukraine’s debt securities is analyzed. The relationship between the swap value and geopolitical factors in the formation of the international investment position of the state is shown. In order to increase the efficiency of credit default swaps in external public debt management and minimize the interest rate risks of external government borrowings, it is suggested to amend norms and regulations, providing for the essence of default swap, the composition of the parties, accounting and value formation peculiarities.

Keywords: credit default swap, credit rating, derivative financial instruments, external public debt, public debt management.

Fig.: 4. Tabl.: 4. Formulae: 4. Bibl.: 10.

Lupenko Andrii Yu. – Head of the Department, Securities Department of the Treasury Operations Office, State Mortgage Institution (34 Lesi Ukrainky Blvd., Kyiv, 01133, Ukraine)
Email: Lupenko.A.Yu@gmail.com

List of references in article

Kravchuk, I. S. “Sekiurytyzatsiia aktyviv u yevropeiskomu finansovomu prostori“ [Securitization of Assets in the European Financial Space]. Oblik i finansy, no. 2(76) (2017): 91-98.
Choudhry, M. An Introduction to Credit Derivatives. London: Elsevier, 2013.
Naumenkova, S. V., and Mishchenko, V. I. Valiuta i valiutna polityka [Currency and Monetary Policy]. Kyiv: Znannia, 2010.
Solodka, O. “Kredytnyi defoltnyi svop u mekhanizmi pererozpodilu kredytnoho ryzyku“ [Credit Default Swap in the Mechanism of Credit Risk Redistribution]. Visnyk Kyivskoho natsionalnoho universytetu imeni Tarasa Shevchenka, no. 2 (2015): 85-91.
Culp, Ch. L., Merwe, A., and Starkle, B. J. Credit Default Swaps. Mechanics and Empirical Evidence on Benefits, Costs, and Inter-Market Relations. Cham: Palgrave Macmillan, 2018.
Evolution of OTC Derivatives Markets Since the Financial Crisis. New York: ISDA, 2020.
Karminskiy, A. M. Kreditnyye reytingi i ikh modelirovaniye [Credit Ratings and Their Modeling]. Moscow: ID VShE, 2015.
“Default, Transition, and Recovery: 2019 Annual Global Corporate Default and Rating Transition Study“. https://www.spglobal.com/ratings/en/research/articles/200429-default-transition-and-recovery-2019-annual-global-corporate-default-and-rating-transition-study-11444862
Shavruk, V. “Rynok kreditnykh defoltnykh svopov: vozniknoveniye i tendentsii razvitiya“ [Credit Default Swap Market: Emergence and Development Trends]. Bankauski vesnik, no. 6 (June) (2012): 43-51.
Hrabynska, I., Buniak, V., and Fedak, I. “Kredytno-defoltni svopy u systemi finansovoho ryzyk-menedzhmentu“ [Credit Default Swaps in the System of Financial Risk Management]. Visnyk Lvivskoho universytetu. Seriia ekonomichna, no. 56 (2019): 112-126.