Titman, Sheridan
[Verfasser:in]
;
Martin, John D.
[Sonstige Person, Familie und Körperschaft];
Anshuman, V. Ravi
[Sonstige Person, Familie und Körperschaft]
Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments September 30, 2010 erstellt
Beschreibung:
The traditional approach to evaluating investments in emerging economies has been to add a political default premium to the discount rate used to evaluate the investment's net present value. This approach contrasts with the textbook approach that accounts for political risk by adjusting expected cash flows. In this paper we discuss the notion of a term structure of default risk and identify the types of valuation errors that occur if cumulative survival rates do not decline exponentially (which is implicit in the use of a constant sovereign default adjustment to the discount rate). Moreover, we point out the importance of structuring the investment project terms so as to minimize the risk of expropriation