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Only Paul Could Go To Changchun

Understanding Credit Risk: A Classroom Experiment

6/14/2020

 
Here.

This classroom experiment introduces students to the notion of credit risk and expected return, by allowing them to trade on comparable corporate bond issues from two types of markets: investmentgrade and high-yield markets. Investment-grade issues have a lower probability of default than high-yield issues and thus provide a lower yield. Participants can earn money in three ways: from coupon payments, from the face value of the bond, and by capital gains. While participating in an experiment, students learn about the notion of risk and return, how credit risk affects bond prices, the movement of bond prices through time, and other general characteristics of the bond markets.

From:

Maros Servatka
George Theocharides

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