New early warning system for European debt default

Professor Damiano Brigo from the Department of Mathematics has been working through Imperial Consultants to assist Capco in developing the CEPIX Index, which provides country-by-country analysis and profiling of the propensity of Eurozone members to default on national debt.

 

Peter Schurau, Capco European CEO, says:

“Potential national debt default remains a front of mind issue in the Eurozone, as recent events have underlined yet again. The Capco CEPIX Index will provide practitioners, analysts and commentators with insightful information around the challenging questions that underlie national debt, as well as stimulating discussion about the current crisis.”

 

Professor Brigo, who is also Director of the Capco Research Institute and Editor of Capco’s Journal of Financial Transformation, explains:

“At the technical level, CEPIX bridges market implied probabilities of individual country national debt default and those published by rating agencies. We modelled the indicator to avoid the occasional sharp changes created by discrete rating agency updates, while smoothing sometimes unnecessarily high volatility of market implied default risks stemming from risk premia.”

Capco intend the CEPIX Index to provide indicative data to financial institutions and governments, allowing them to prepare for national debt deterioration or default and better manage the associated risk.

 

Going forward, Professor Brigo’s hope for the new indicator is that:

“CEPIX will start a discussion that leads to deeper insights into the European crisis and helps define a reliable threshold for determining the extreme yet still possible scenario of ‘Euro Breakup’”.

Share post:

 

Related case studies

 

Freshwater control system

Freshwater control system

Expertise in hydrological modelling helped PyTerra demonstrate the potential of new smart technology to reduce downstream flooding. read more

Intelligent infrastructure paves way for Electric Vehicles

Intelligent infrastructure paves way for Electric Vehicles

Modelling and analysis of the impact of PHEVs on the operation and design of the UK electricity distribution network. read more

From big data to knowledge

From big data to knowledge

Dr Roberto Trotta reveals how his astrostatistics skills can solve the everyday complex data problems of a wide range of organisations. read more