HN 4934 995 Derivatives Hom x + C Q Search or enter web address Not syring 2 of 2 a + Q ID Page view A Read aloud Add text Draw Highlight Erase 9. Suppose that the risk-free zero coupon curve is flat at 3.0% per annum with continuous compounding and that defaults can occur half way through each year in a new four-year credit default swap. You have estimated that the expected recovery rate is 26% and the hazard rate (2) is 2.4%. Assume that the CDS payments will be made annually in arrears. (a) Estimate the credit default swap spread using Equation 24.2 from the text. (b) Calculate the credit default swap spread using the available information to model the cash flows of the CDS. Use the equation: V(t) = e-it = to determine the likelihood of survival at each potential default time. (c) How do your two answers differ? Why? I Type here to search H 70F Sunny A4 12:52 PM 11/21/2021 HN 4934 995 Derivatives Hom x + C Q Search or enter web address Not syring 2 of 2 a + Q ID Page view A Read aloud Add text Draw Highlight Erase 9. Suppose that the risk-free zero coupon curve is flat at 3.0% per annum with continuous compounding and that defaults can occur half way through each year in a new four-year credit default swap. You have estimated that the expected recovery rate is 26% and the hazard rate (2) is 2.4%. Assume that the CDS payments will be made annually in arrears. (a) Estimate the credit default swap spread using Equation 24.2 from the text. (b) Calculate the credit default swap spread using the available information to model the cash flows of the CDS. Use the equation: V(t) = e-it = to determine the likelihood of survival at each potential default time. (c) How do your two answers differ? Why? I Type here to search H 70F Sunny A4 12:52 PM 11/21/2021