Questions from Business Statistics

Q: What is the credit default swap spread in Problem 25.8

What is the credit default swap spread in Problem 25.8 if it is a binary CDS? Data from Problem 25.8: Suppose that the risk-free zero curve is flat at 7% per annum with continuous compounding and th...

Q: How does a 5-year nth-to-default credit

How does a 5-year nth-to-default credit default swap work? Consider a basket of 100 reference entities where each reference entity has a probability of defaulting in each year of 1%. As the default co...

Q: Show that the spread for a new plain vanilla CDS should be

Show that the spread for a new plain vanilla CDS should be
times the spread for a similar new binary CDS, where R is the recovery rate.

Q: Verify that, if the CDS spread for the example in Tables

Verify that, if the CDS spread for the example in Tables 25.1 to 25.4 is 100 basis points, the hazard rate must be 1.63% per year. How does the hazard rate change when the recovery rate is 20% instead...

Q: Explain how forward contracts and options on credit default swaps are structured

Explain how forward contracts and options on credit default swaps are structured.

Q: ‘‘The position of a buyer of a credit default swap is

‘‘The position of a buyer of a credit default swap is similar to the position of someone who is long a risk-free bond and short a corporate bond.’’ Explain this statement.

Q: A security’s price is positively dependent on two variables: the

A security’s price is positively dependent on two variables: the price of copper and the yen/dollar exchange rate. Suppose that the market price of risk for these variables is 0.5 and 0.1, respective...

Q: Suppose that in a one-factor Gaussian copula model the 5

Suppose that in a one-factor Gaussian copula model the 5-year probability of default for each of 125 names is 3% and the pairwise copula correlation is 0.2. Calculate, for factor values of -2, -1, 0,...

Q: Explain the difference between base correlation and compound correlation.

Explain the difference between base correlation and compound correlation.

Q: Explain why a total return swap can be useful as a financing

Explain why a total return swap can be useful as a financing tool.