Sovereign Credit Risk and Exchange Rates: Evidence from CDS Quanto Spreads
Bibliographic record
Abstract
Sovereign CDS quanto spreads-the difference between CDS premiums denominated in U.S. dollars and a foreign currency-tell us how financial markets view the interaction between a country's likelihood of default and associated currency devaluations (the Twin Ds).A noarbitrage model applied to the term structure of quanto spreads can isolate the interaction between the Twin Ds and gauge the associated risk premiums.We study countries in the Eurozone because their quanto spreads pertain to the same exchange rate and monetary policy, allowing us to link crosssectional variation in their term structures to cross-country differences in fiscal policies.The ratio of the risk-adjusted to the true default intensities is 2, on average.Conditional on the occurrence of default, the true and risk-adjusted 1-week probabilities of devaluation are 5% and 77%, respectively.The risk premium for the euro devaluation in case of default exceeds the regular currency premium by up to 0.3% per week.
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How this classification was reachedexpand
Full frame machine prediction
Teacher imitationNot calibrated prevalence, not ground truth. Human validation pending. The Gemma side is a direct model label for every work in the frame, read from the title-only record. The Codex side is a classifier learned from the 10,348 direct Codex labels and calibrated to design-weighted sample rates; fields without enough sample support carry no Codex call. Candidate is the union of the two sides; consensus is their intersection. These outputs are machine_predicted_unvalidated and are not human labels.
Distilled classifier scores by category (both heads)
| Category | Codex | Gemma |
|---|---|---|
| Metaresearch | 0.003 | 0.042 |
| Meta-epidemiology (narrow) | 0.000 | 0.000 |
| Meta-epidemiology (broad) | 0.000 | 0.000 |
| Bibliometrics | 0.002 | 0.003 |
| Science and technology studies | 0.000 | 0.001 |
| Scholarly communication | 0.002 | 0.002 |
| Open science | 0.001 | 0.001 |
| Research integrity | 0.001 | 0.001 |
| Insufficient payload (model declined to judge) | 0.006 | 0.001 |
Machine scores (provisional)
The two teacher heads of the student model, read on this work. A score orders the frame for review; it never asserts a category, and the validation status ships verbatim with every row.
Baseline scores from an immature model (maturity gate not passed, 7 training rounds). Scores rank; they never assert a category.
score_only:v0-immature-baseline · verbatim from the scoring run: score_only means the number may rank works, and no category label ships from itClassification
machine, unvalidatedMachine predicted; a candidate call from one source (direct Gemma or distilled Codex), not a consensus.
How this classification was reached, model by model and score by score, is at the end of the page under "How this classification was reached".