Assessing the Market Risk on the Government Debt of Kazakhstan and Bulgaria in Conditions of Turbulence
Em O. Georgiev G. Radukanov S. Petrova M.
May 2022MDPI
Risks
2022#10Issue 5
The purpose of this publication is to quantify and compare the market risk on the external government debt of Kazakhstan and Bulgaria in the conditions of COVID-19, the emerging energy crisis, and the coup attempt in the first country. In particular, the authors invest the market risk of sovereign bonds issued on global financial markets. Market risk is assessed both as a single issue and at a portfolio level using the Value-at-risk approach. Sixteen samples with historical observations of all issues of Kazakhstan’s and Bulgarian Sovereign Bonds issued on the international financial markets were formed. The duration method was used in the calculation of Delta normal bond VaR and CVaR. It was found that with the same credit rating, similar portfolio duration levels, similar GDP per capita, Debt (% of GDP), and Debt Per Capita, the market risk on their portfolio differed significantly. The comparison of risk levels between the two portfolios was made by six indicators–two indicators measuring linearly the sensitivity of bond prices to changes in market interest rates (Weighted average Macaulay duration and Weighted average modified duration) and four downside indicators (Undiversified VaR, Diversified VaR, Undiversified CVaR, amd Diversified CVaR). The return/risk performance of both portfolios was assessed by the Sharpe ratio in three variants (SR Undiversified VaR, SR Diversified VaR, and SR Diversified CVaR). When evaluating the bond portfolio VaR and CVaR, a practical version of the Duration method was proposed, which allows the use of an unlimited number of assets, taking into account the correlations between yield returns and historical price volatility.
a bond portfolio , diversified conditional value at risk , duration , government debt , sovereign bonds , value-at-risk
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Graduate School of Business, Almaty Management University, Almaty, 050060, Kazakhstan
Department of Economics and Finance, University of Agribusiness and Rural Development, Plovdiv, 4003, Bulgaria
Department of Economic Theory and International Economic Relations, St. Cyril and St, Methodius University of Veliko Tarnovo, Veliko Tarnovo, 5000, Bulgaria
Department of Information Technologies, St. Cyril and St. Methodius University of Veliko Tarnovo, Veliko Tarnovo, 5000, Bulgaria
D.A. Tsenov Academy of Economics, Svishtov, 5250, Bulgaria
Graduate School of Business
Department of Economics and Finance
Department of Economic Theory and International Economic Relations
Department of Information Technologies
D.A. Tsenov Academy of Economics
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