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

摘要

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.