Assume that the hazard rate for a company is and the recovery rate is R. The risk-free
Chapter 25, Problem 25.25(choose chapter or problem)
Assume that the hazard rate for a company is and the recovery rate is R. The risk-free interest rate is 5% per annum. Default always occurs halfway through a year. The spread for a 5-year plain vanilla CDS where payments are made annually is 120 basis points and the spread for a 5-year binary CDS where payments are made annually is 160 basis points. Estimate R and .
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