JUMP-DRIVEN VOLATILITY IN EMERGING SOVEREIGN BONDS: A SELF-EXCITING POISSON MODEL

Abstract

This article focuses investment and how its sudden changes can affect the standing of emerging countries. Many asset prices fluctuate unpleasantly in a sudden manner & the impact is too large to be explained by most predictable models, so constant updating is necessary. Our research team has created a mathematical model that represents a certain spectacular phenomenon occurring in the bond market. This study will examine the effects of market volatility on emerging markets and the resulting consequences. They used computer learning on South American countries in order to take better control of the risks that are present in certain places. The world's economic structure is influenced by a delicate change at the wrong moment. A recent study reveals that debt models are cautious when it comes to assigning international emerging markets probability of default, but not so much when it comes to Western debt. The amount of what risked markets have jumped in price has helped us make better informed decisions to prevent large loses in those risky markets.

Keywords: Sovereign bonds, volatility, emerging markets, Poisson model, risk management, jump-driven volatility, machine learning.