The Valuation of Corporate Coupon Bonds

UNIVERSITY OF TECHNOLOGY SYDNEY
Finance Department
Research Seminars in Finance

Jens Hilscher

Topic: The Valuation of Corporate Coupon Bonds

Speaker: Jens Hilscher, University of California, Davis

Abstract: This paper shows that for a sample of corporate bond prices, credit spreads and therefore discount rates of promised coupons and pricipal differ substantially. To better fit this stylized fact we propose and estimates a tractable, arbitrage-free valuation model for corporate coupon bonds that includes a more realistic recovery rate process. The existing empirical literature does not differentiate between coupons and principal and thus assumes a recovery rate process that is misspecified because it includes recovery rates for coupons due after default. Misspecification errors resulting from assuming recovery on all coupons can be substantial in size. They are larger if recovery rates, coupons, maturity and default probabilities are larger. For a large set of bond market transactions our model has lower pricing errors than one assuming full coupon recovery and predicts the magnitude of pricing outperformance well.

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Moderator: Thomas Matthys, University of Technology Sydney

Date: Wednesday, 13th October 2021
Time: 9-10 am (Australian Eastern Daylight Time)
Venue: This is on online Zoom webinar.

Seminar protocols:

  • The webinar will run for 45 minutes, followed by a 15 minute Q&A session.
  • There will be a moderator for each seminar event, who will facilitate communication and resolve any technical issues.
  • Participants can use the chat facility or raise their had to ask questions during the presentation. The moderator will then alert the speaker at the appropriate time and either ask the questions raised or unmute the participant so they can ask the question directly to the presenter.

Co-ordinator: Harry Scheule

Enquiries: Duncan Ford

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