Describe the intuition for why the swap rate on a fixed-for-floating interest rateswap is equivalent to the coupon rate on a part coupon bond.

2.Is the implied volatility of options with the same expiry at different strikes thesame? If so, what model is that consistent with? If not, what are the differences?

3.Consider a CDS Index consisting of several CDS, each of which has aprobability of default of 5%. What are the preferences of holders of differenttranches (senior, mezzanine, junior, equity) with respect to underlying default correlation? Why?

4.What is the difference between the risk neutral probability of a state, and thestochastic discount factor associated with that state?How are they related?

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1The intuition behind why the swap rate on a fixedforfloating interest rate swap is equivalent to the coupon rate on a part coupon bond is that both instruments essentially provide a fixed rate of ret... View the full answer