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

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 mod...

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Bibliographic Details
Published in:Review of Pacific basin financial markets and policies 2015-12, Vol.18 (4), p.1550023
Main Authors: Friesenegger, Alexander, Rathgeber, Andreas W., Stöckl, Stefan
Format: Article
Language:English
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Summary: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.
ISSN:0219-0915
1793-6705
DOI:10.1142/S021909151550023X