Alfonso Mendoza Velázquez is an Associate Professor in the Department of Economics, Universidad de las Américas Puebla, Sta. Catarina Martir s/n, Cholula, Puebla, C.P. 72820, Mexico. He can be reached at email@example.com or firstname.lastname@example.org
Subnational Debt Swaps in Mexico, How Big Is Risk Exposure?
Version of Record online: 30 AUG 2007
Public Budgeting & Finance
Volume 27, Issue 3, pages 110–129, Fall 2007
How to Cite
VELÁZQUEZ, A. M. (2007), Subnational Debt Swaps in Mexico, How Big Is Risk Exposure?. Public Budgeting & Finance, 27: 110–129. doi: 10.1111/j.1540-5850.2007.00885.x
- Issue online: 30 AUG 2007
- Version of Record online: 30 AUG 2007
Research and practice with derivative instruments by States and Municipalities in Mexico are virtually unexplored. This paper investigates the effect of interest rate jumps and financial contagion on the risk exposure of Subnational Government debt swaps in Mexico. Unconditional risk exposure measures of debt swaps are obtained by simulating a set of stochastic processes with jumps. Simulation results confirm that risk exposure of local debt swaps increases with Poisson discontinuities while a significant effect is observed after crisis contagion is accounted for.