Question: Assume that defaults can occur half way through each year in a new five-year credit default swap and payments are made annually. Suppose that the

  1. Assume that defaults can occur half way through each year in a new five-year credit default swap and payments are made annually. Suppose that the recovery rate is 30% and the default probabilities each year conditional on no earlier default are 3%. Describe theoretically how you can calculate the credit default swap spread.

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