Using Monte Carlo simulation, reproduce Tables 27.10 and 27.11. Produce a similar table assuming a default correlation of 25%.
Answer to relevant QuestionsSuppose that you go to a bank and borrow $100. You promise to repay the loan in 90 days for $102. Explain this transaction using the terminology of short-sales. Suppose you short-sell 300 shares of XYZ stock at $30.19 with a commission charge of 0.5%. Supposing you pay commission charges for purchasing the security to cover the short-sale, how much profit have you made if you close ...Suppose the stock price is $40 and the effective annual interest rate is 8%. Draw payoff and profit diagrams for the following options: a. 35-strike put with a premium of $1.53. b. 40-strike put with a premium of $3.26. c. ...Following Table 27.10, compute the prices of first, second, and Nth-to-default bonds assuming that defaults are uncorrelated and that there are 5, 10, 20, and 50 bonds in the portfolio. How are the Nth-to-default yields ...Repeat the previous problem, only compute the expected recovery value instead of the default probability. How does the expected recovery value change as time to maturity changes?
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