1. [Credit triangle] In this exercise, you are asked to show that i : h.(1 7:) Where 75' is the CDS par spread. h is the constant hazard rate, and ET is the recovery rate of the defaultable bond. Assumptions: 0 The default arrival is modeled by a homogeneous Poisson process NU) with intensity A > 0. 0 Assume the interest rate process is constant ( r(s) : r for all s ) o The recovery rate a is constant. I The protection payments are continuous. That is, the total value of the protection leg of a CDS with maturity T is T E [/ 3(0g tl1{r>t}df . U o The corresponding value of the default leg is given by (1 )E [33(03T)1{T E Tll . NOTE: Here we do not assume discretization. That is, if default happens at T the default payment takes place at that time T. Prove the socalled credit triangle relationship in credit risk