Center for Analytical Finance University of California , Santa Cruz Working Paper No . 37 The Pricing of Sovereign Risk Under Costly Information

Abstract

We explore the consequences of costly information acquisition on the pricing of sovereign risk. We consider an environment in which lenders' information acquisition and the sovereign's default decision are jointly endogenous. We find that the model generates statedependent allocation of investor attention, which has a number of implications: First, it… (More)

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