Question
Consider a Credit Default Swap with maturity 2 years, paying a premium with semi-annual frequency. Assume that defaults can occur only at times 0.25 years,
Consider a Credit Default Swap with maturity 2 years, paying a premium with semi-annual frequency.
Assume that defaults can occur only at times 0.25 years, 0.75 years, 1.25 years and 1.75 years, as in the example discussed in class.
The CDS spread is 275 basis points. Assume that the risk-free interest rate is 4.5% and the recovery rate is R = 40%.
What is the hazard rate of the reference name? Assume a constant hazard rate for the entire maturity of the CDS.
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Public Finance An International Perspective
Authors: Joshua E. Greene
1st Edition
9814365041, 978-9814365048
