Understanding Credit Risk: A Classroom Experiment

Maroš Servátka and George Theocharides ()

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: This classroom experiment introduces students to the notion of credit risk by allowing them to trade on comparable corporate bond issues from two types of markets - investment-grade and high-yield. Investment-grade issues have a lower probability of default than high-yield issues, and thus provide a lower yield. There are three ways in which participants can earn money - from coupon payments, the face value of the bond, and by capital gains. Students learn about the notion of risk and return, how credit risk affects bond prices, as well as some general characteristics of the bond markets.

Keywords: Teaching Experiment; Credit Risk; Bond Market; Risk and Return (search for similar items in EconPapers)
JEL-codes: A20 C90 D84 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2007-12-11
New Economics Papers: this item is included in nep-exp and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://repec.canterbury.ac.nz/cbt/econwp/0706.pdf (application/pdf)

Related works:
Journal Article: Understanding Credit Risk: A Classroom Experiment (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:07/06

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