Estimating the Implied Default Probability and Recovery Rate in the Investment Corporation Bond Pricing Model

• Activity Number: 441
• Type: Contributed
• Date/Time: Tuesday, August 6, 2013 : 2:00 PM to 3:50 AM
• Sponsor: Business and Economic Statistics Section
• Author(s): Masakazu Ando*+ and Hiroshi Tsuda
• Companies: Chiba Institute of Technology and Doshisha University
• Keywords: Pricing model ; Implied default probability ; Investment corporation bond ; Japanese market

Abstract

In the present study, it is a purpose to evaluate the pricing model of the investment corporation bond that the investment corporation issued for the funding by using corporate bond pricing model SCBCSM(Straight Coupon Bond Cross-Sectional Market) proposed by Tsuda (2006). This model is estimated the implied default probability and the recovery rate from the market price simultaneously. The cap rate and the amount of market value of the property that the investment corporation had were presumed, and the recovery rate model presumption was tried there now. A new finding like the term structure of the default probability at the time of each bond ranking and the effectiveness of the pricing model was obtained from the market price data of the investment corporation bond.