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

Alexander Friesenegger (), Andreas W. Rathgeber () and Stefan Stöckl
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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

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2015, vol. 18, issue 04, 1-34

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.

Keywords: Insolvency law; Jarrow–Turnbull model; credit default risk; coupon effect; recovery rate; reduction models (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1142/S021909151550023X

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