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Recovery Rate in the Event of an Issuer’s Insolvency — Empirical Study on Implications for the Pricing of Credit Default Risks in German Corporate Bonds

Author

Listed:
  • Alexander Friesenegger

    (Chair for Risk Management and Derivatives, University of Hohenheim, Germany)

  • Andreas W. Rathgeber

    (Institute of Materials Resource Management, Faculty of Mathematics and Natural Sciences, University of Augsburg, Germany)

  • Stefan Stöckl

    (ICN Business School Nancy-Metz, France, CEREFIGE (European Centre for Research in Financial Economics and Business Management), France)

Abstract

According to the Jarrow–Turnbull model, coupon bonds are valuated as a portfolio of zero-coupon bonds that, in the event of insolvency, pay a recovery rate at the end of their term. However, when it comes to valuations, the German insolvency law differs in certain respects. To find out whether a model adapted to the German insolvency law will prove to be more empirically robust, an empirical study of 103 corporate bonds was carried out over more than 800 trading days.

Suggested Citation

  • Alexander Friesenegger & Andreas W. Rathgeber & Stefan Stöckl, 2015. "Recovery Rate in the Event of an Issuer’s Insolvency — Empirical Study on Implications for the Pricing of Credit Default Risks in German Corporate Bonds," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 18(04), pages 1-34, December.
    • Handle: RePEc:wsi:rpbfmp:v:18:y:2015:i:04:n:s021909151550023x
    DOI: 10.1142/S021909151550023X
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    References listed on IDEAS

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    4. Robert A. Jarrow & Stuart M. Turnbull, 2008. "Pricing Derivatives on Financial Securities Subject to Credit Risk," World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 17, pages 377-409, World Scientific Publishing Co. Pte. Ltd..
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