© 2011

Recovery Risk in Credit Default Swap Premia

  • Authors

Table of contents

  1. Front Matter
    Pages I-xix
  2. Timo Schläfer
    Pages 1-4
  3. Timo Schläfer
    Pages 5-17
  4. Timo Schläfer
    Pages 27-50
  5. Timo Schläfer
    Pages 51-86
  6. Timo Schläfer
    Pages 87-89
  7. Back Matter
    Pages 91-112

About this book


The finance literature looks at a number of factors to explain risk premia in corporate debt, such as liquidity effects, jump-to-default risk, and contagion risk. Stochastic recovery rates as a source of systematic risk have not received much attention so far, most likely due to the difficulties around decomposing the expected loss. Timo Schläfer exploits the fact that differently-ranking debt instruments of the same issuer face identical default risk but different default-conditional recovery rates. He shows that this allows isolating recovery risk without any of the rigid assumptions employed by priors and implements his approach using credit default swap data.


Credit risk Default rate Loan-only credit default swap Recovery rate Risk premia

About the authors

Dr. Timo Schläfer completed his doctoral thesis under the supervision of Prof. Dr. Marliese Uhrig-Homburg at the Chair of Financial Engineering and Derivatives at the Karlsruhe Institute of Technology. He works in the investment banking industry.

Bibliographic information

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