Value-at-risk for Thai government's foreign bonds and loands

Abstract

Under managed floating system, the government should closely examine its foreign debt. Of this thesis, the author purposes Value-at-Risk methodology to analyze the present value of maximum loss of payment for Thai government ’ s direct external debt. The study shows how to select optimal currency for issuing a new bond with minimum risk. Analytical and Monte Carlo Simulation are used to find the present value and use DelVar method to suggest proper currencies. Before 1994, we find most of public foreign debt are long term and denominated in US dollar and Japanese Yen. Furthermore, the most proportion of external debt with short maturity was created in capital markets between 1994 and 1995. The impact of changing exchange rate system in 1997 increases the present value of debt by 47.61% and the value at risk by 89.85%. Under scenario of stable exchange rate, Swiss France is the optimal at the margin to decrease total value at risk. Under the unstable scenario, the government can not decrease the value at risk by issuing a new bond that will increase at least 15 satang for a baht issued. Under floating exchange rate system, risk of foreign debt is significance and VaR model is very useful to analyze risk.