Essays on sovereign debt premia under ambiguity

The two essays in this dissertation show how model uncertainty can explain a fraction of the premium in sovereign debt. Investors charge a premium on risky debt in order to guard themselves against possible specification errors in their model. In the first chapter, I introduce misspecification doubts and ambiguity-averse investors into a model of sovereign default. Model uncertainty generates a risk premium without the need for correlation between foreign investors' consumption and default. I quantify the premium, and characterize its main component, the market price of model uncertainty. While risk premiums are increasing in debt, the market price of uncertainty is decreasing, partially offsetting the higher risk from default.;The second chapter examines the Argentine experience with GDP-indexed bonds. I first build a benchmark valuation under a risk neutrality, using "plain-vanilla" bonds discount rates to discount cash flows. After showing the existence of unexplained premia under the benchmark, I introduce a new stochastic discount factor, under GDP model uncertainty and ambiguity-averse investors. The results show that the uncertainty premium paid by Argentina's GDP-indexed bonds remained high throughout the period of analysis, suggesting that the risk-sharing gains from consumption smoothing could be counterbalanced by the high premia.;JEL Classification: E44, F34, G12;Keywords: Sovereign Default, Interest Rates, Ambiguity-Aversion, GDP-indexed Debt.