The 1-, 2-, 3-, 4-, and 5-year CDS spreads are 100, 120, 135, 145, and 152 basis points
Chapter 25, Problem 25.30(choose chapter or problem)
The 1-, 2-, 3-, 4-, and 5-year CDS spreads are 100, 120, 135, 145, and 152 basis points, respectively. The risk-free rate is 3% for all maturities, the recovery rate is 35%, and payments are quarterly. Use DerivaGem to calculate the hazard rate each year. What is the probability of default in year 1? What is the probability of default in year 2?
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