A French company files for bankruptcy, triggering various CDS contracts. It has two series of senior bonds
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A French company files for bankruptcy, triggering various CDS contracts. It has two series of senior bonds outstanding: Bond A trades at 30% of par, and Bond B trades at 40% of par. Investor X owns €10 million of Bond A and owns €10 million of CDS protection. Investor Y owns €10 million of Bond B and owns €10 million of CDS protection.
Explain whether Investor Y would prefer to cash settle or physically settle his CDS contract or whether he is indifferent.
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Investor Y would prefer a cash settlement because he owns Bond B which ...View the full answer
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