We apply a structural pricing model to bond market data in order to estimate the
default risk for Argentina in 2000/2001. The model explicitly considers short-term
and long-term debt service payments and their dependencies by employing compound
option theory. In this way, it is possible to take into account both the empirically
observed dependency between the term structure of bond spreads and the default risk
as well as the finding that the ratio of short-term to long-term debt is of special importance for default risk. The model parameters are estimated using Duan’s (1994) time series-based maximum likelihood approach.
