How does a five-year n th-to-default credit default swap work. Consider a basket of 100 reference entities
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How does a five-year n th-to-default credit default swap work. Consider a basket of 100 reference entities where each reference entity has a probability of defaulting in each year of 1%. As the default correlation between the reference entities increases what would you expect to happen to the value of the swap when a) n = 1 and b) n = 25. Explain your answer.
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