David says that “CDS is essentially the same as buying default insurance on the risky corporate bond, where the buyer pays for the default protection and the seller sells the protection.” Thus he concludes that CDS is the same as other insurance. Comment on David’s conclusion.
Answer to relevant QuestionsYou are in the process of developing forecasts of short-term interest rates. In order to determine a bond trading strategy, you want to determine the market’s short-term (one-year) interest forecasts for different future ...Describe the process of marking to market for futures contracts.Mr. Cabinet is interested in the payoffs to combinations of options. Graph the intrinsic values of the following portfolios (all options expire on the same day and are written on the same non-dividend-paying asset).a. Long ...Does put-call parity hold for the following? Risk-free rate = 5%, P0 = $13, C0 = $ 10, stock price (S) = $30, t = 4 years, strike price (X) = $33. If not, what is the put price according to put-call parity, assuming the ...In most markets, you are not permitted to short sell if the stock price has fallen. That is, you can only short sell on an “uptick.” Using put-call parity, show that you can replicate the cash flows of a short sale.
Post your question