Question
Consider a binomial model with two securities, a corporate bond B and a credit default swap CDS. B pays off one in state u and
Consider a binomial model with two securities, a corporate bond B and a credit default swap CDS. B pays off one in state u and zero in state d and costs B0 today. CDS pays off zero in state u and one in state d and costs CDS0 today.
Write down an expression for the risk-free rate for this tree.
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