Understanding Credit Risk: A Classroom Experiment
AbstractThis classroom experiment introduces students to the notion of credit risk by allowing them to trade on comparable corporate bond issues from two types of markets - investment-grade and high-yield. Investment-grade issues have a lower probability of default than high-yield issues, and thus provide a lower yield. There are three ways in which participants can earn money - from coupon payments, the face value of the bond, and by capital gains. Students learn about the notion of risk and return, how credit risk affects bond prices, as well as some general characteristics of the bond markets.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Canterbury, Department of Economics and Finance in its series Working Papers in Economics with number 07/06.
Length: 22 pages
Date of creation: 11 Dec 2007
Date of revision:
Contact details of provider:
Postal: Private Bag 4800, Christchurch, New Zealand
Phone: 64 3 369 3123 (Administrator)
Fax: 64 3 364 2635
Web page: http://www.econ.canterbury.ac.nz
More information through EDIRC
Teaching Experiment; Credit Risk; Bond Market; Risk and Return;
Other versions of this item:
- A20 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - General
- C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-04-29 (All new papers)
- NEP-EXP-2008-04-29 (Experimental Economics)
- NEP-RMG-2008-04-29 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Forsythe, Robert & Palfrey, Thomas R. & Plott, Charles R., .
"Asset Valuation in an Experimental Market,"
299, California Institute of Technology, Division of the Humanities and Social Sciences.
- Oechssler, Jörg & Schmidt, Carsten & Schnedler, Wendelin, 2009.
"Asset Bubbles without Dividends - An Experiment,"
0439, University of Heidelberg, Department of Economics.
- Plott, Charles R & Sunder, Shyam, 1988.
"Rational Expectations and the Aggregation of Diverse Information in Laboratory Security Markets,"
Econometric Society, vol. 56(5), pages 1085-1118, September.
- Plott, Charles R. & Sunder, Shyam., . "Rational Expectations and the Aggregation of Diverse Information in Laboratory Security Markets," Working Papers 463, California Institute of Technology, Division of the Humanities and Social Sciences.
- Martin Dufwenberg & Tobias Lindqvist & Evan Moore, 2005. "Bubbles and Experience: An Experiment," American Economic Review, American Economic Association, vol. 95(5), pages 1731-1737, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Albert Yee).
If references are entirely missing, you can add them using this form.