Systematic Credit Risk and Pricing for Fixed Income Instruments

Posted: 28 Feb 2018

See all articles by Daniel Roesch

Daniel Roesch

University of Regensburg

Harald (Harry) Scheule

University of Technology Sydney (UTS) - School of Finance and Economics; Financial Research Network

Date Written: 2016

Abstract

This paper analyzes the sensitivity to systematic credit risk and pricing in fixed income instruments and compares corporate bonds and asset securitizations. The paper finds cross-sectional variation of systematic credit risk given the same credit rating and a market premium for the systematic risk embedded in yield spreads. Therefore, credit ratings do not provide comprehensive information on the degree of systematic risk and investors are compensated for such differences in systematic risk after controlling for credit ratings and other risk characteristics.

Keywords: Corporate Bond, Credit Risk, Financial Crisis, Fixed Income, Pricing, Rating, Securitization, Systematic Risk, Yield Spread

JEL Classification: G20, G28, C51

Suggested Citation

Roesch, Daniel and Scheule, Harald, Systematic Credit Risk and Pricing for Fixed Income Instruments (2016). Journal of Fixed Income, Vol. 26, No. 1, 2016, Available at SSRN: https://ssrn.com/abstract=3126260

Daniel Roesch

University of Regensburg ( email )

Chair of Statistics and Risk Management
Faculty of Business, Economics and BIS
Regensburg, 93040
Germany

HOME PAGE: http://www-risk.ur.de/

Harald Scheule (Contact Author)

University of Technology Sydney (UTS) - School of Finance and Economics ( email )

P.O. Box 123
Broadway, NSW 2007
Australia

HOME PAGE: http://https://www.uts.edu.au/staff/harald.scheule

Financial Research Network ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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