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To buy protection over three years an investor has to pay a 30bp premium on Wal-Mart. Based on a notional deal of 25m, the quarterly
To buy protection over three years an investor has to pay a 30bp premium on Wal-Mart. Based on a notional deal of 25m, the quarterly payment to the protection seller is:
Premium x Notional x 90/360
Draw the cash-flow scheme if Wal-Mart enters into a credit event during the maturity of the credit default swap. Based on the pre-agreed terms, the protection buyer receives the credit default swap amount of 25m or the face amount of a reference portfolio and the contract matures early.
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