The CDS curve in question is shown: Table 1: CDS Curve CDS Maturity (Years) 1234567 Quoted...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
The CDS curve in question is shown: Table 1: CDS Curve CDS Maturity (Years) 1234567 Quoted Flat CDS Spread (bp) 30 40 50 60 70 80 90 8 100 9 110 10 120 The CDS spreads shown in this table are Quoted Flat Spreads assuming a fixed coupon of 100bps, they are NOT Par Spreads. In this coursework candidates will be required to calculate the risky annuity of various points of the CDS curve and under different assumptions. This coursework assumes an annual convention for the calculation of the risky annuity, such that: Risky Annuity = + PS PS 1+r (1+r) +...+ PSt (1+r)* where t is the maturity (in years) of the CDS, is the risk free rate and PS, is the cumulative survival probability over t years. The Hazard Rate using Flat Spread convention is assumed to be constant when calculating the risky annuity for a specific point in the CDS curve; this is not the case for a par spread curve. The risk free rate is constant and equal to 1% and the CDS curve recovery rate is 40%. Question 1. a) For each maturity i of the Flat CDS curve, calculate: Average annual default probability over -years (assuming Flat Spread convention). Two decimal places, % number (xx%). . . Risky Annuity for the years CDS (assuming Flat Spread convention). Three decimal places (.xxx). CDS upfront that would be payable by the buyer of protection to enter a 100bps fixed coupon CDS trade. Three decimal places in % of notional (.xxx%). b) Calculate the risky duration for each point on the CDS curve; i.e. the change in upfront that would result from a 1bp increase in the quoted spread. c) Is there a CDS for which Risky Annuity and Risky Duration are very similar? Why? The CDS curve in question is shown: Table 1: CDS Curve CDS Maturity (Years) 1234567 Quoted Flat CDS Spread (bp) 30 40 50 60 70 80 90 8 100 9 110 10 120 The CDS spreads shown in this table are Quoted Flat Spreads assuming a fixed coupon of 100bps, they are NOT Par Spreads. In this coursework candidates will be required to calculate the risky annuity of various points of the CDS curve and under different assumptions. This coursework assumes an annual convention for the calculation of the risky annuity, such that: Risky Annuity = + PS PS 1+r (1+r) +...+ PSt (1+r)* where t is the maturity (in years) of the CDS, is the risk free rate and PS, is the cumulative survival probability over t years. The Hazard Rate using Flat Spread convention is assumed to be constant when calculating the risky annuity for a specific point in the CDS curve; this is not the case for a par spread curve. The risk free rate is constant and equal to 1% and the CDS curve recovery rate is 40%. Question 1. a) For each maturity i of the Flat CDS curve, calculate: Average annual default probability over -years (assuming Flat Spread convention). Two decimal places, % number (xx%). . . Risky Annuity for the years CDS (assuming Flat Spread convention). Three decimal places (.xxx). CDS upfront that would be payable by the buyer of protection to enter a 100bps fixed coupon CDS trade. Three decimal places in % of notional (.xxx%). b) Calculate the risky duration for each point on the CDS curve; i.e. the change in upfront that would result from a 1bp increase in the quoted spread. c) Is there a CDS for which Risky Annuity and Risky Duration are very similar? Why?
Expert Answer:
Related Book For
Posted Date:
Students also viewed these finance questions
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
For each of the scatterplots shown, answer the following questions: i. Does there appear to be a relationship between x and y? ii. If so, does the relationship appear to be linear? iii. If so, would...
-
In early 2015, the employment-population ratio was increasing while the labor force participation rate remained largely unchanged. Shouldn't both of these data series move in the same direction?...
-
Consider the supersonic flow of air at upstream conditions of 70 kPa and 260 K and a Mach number of 2.4 over a two-dimensional wedge of half-angle 108. If the axis of the wedge is tilted 250 with...
-
Tom owns a condominium in a high rise building on the shore of Lake Michigan, and has a beautiful view of the lake from his window. He discovered that he can find the number of miles to the horizon...
-
You want to retire in 30 years. You are starting to invest in a growth income fund that promises an ambitious rate of $15 \%$. You can put in $\$ 200$ per month. How much will you have in 30 years?
-
Tanaka Manufacturing Company is considering three new projects, each requiring an equipment investment of $22,000. Each project will last for 3 years and produce the following cash inflows. The...
-
Greenwood Company manufactures two products-15,000 units of Product Y and 7,000 units of Product Z. The company uses a plantwide overhead rate based on direct labor-hours. It is considering...
-
Research on Starbucks as there has been a labor strike. 1. Determine the reasons for this strike and its impact on the company and its stakeholders. 2. In hindsight, how could the company have...
-
why is enthymematic persuasion better? How can you use this to your job ad?
-
An asset falls into a CCA class which has a maximum CCA rate of 23%. The cost of the asset was $205,200. The firm's tax rate is 37% and its cost of capital is 15%. It is expected that the asset will...
-
Think about your own dominant culture.What does it mean to be a member of your national culture?What are the established language, religion, behavior, values, rituals, and social customs within your...
-
There are some goods whose benefits and cost are wholly internalized and other good's benefits and costs are wholly externalized. This polarization view is helpful for understanding the essential...
-
Load the data into Stata and check the dimensions of the data How many observations are there? How many variables Also, obtain a summary of the data. What is the range of years covered in this data...
-
Write a program with three functions: upper, lower, and reverse. The upper function should accept C-string as an argument. It should step through all the characters in the string, converting each to...
-
The test statistic in the NeymanPearson Lemma and the likelihood ratio test statistic K are intimately related. Consider testing H 0 : = 0 versus H a : = a , and let * denote the test statistic...
-
LDDS continued to publicly report increasing profits and sales in the financial statements, which allowed it to acquire more companies with no limit to the growth of its stock price. True/False
-
LDDS suffered from high fixed costs coupled with a lack of technical knowledge and expertise in optimizing the configuration of circuits, which resulted in high line costs. True/False
-
WorldCom overstated its sales by holding its books open at the close of a reporting period. True/False
Study smarter with the SolutionInn App