Exam 23: Credit Derivatives

Suppose that the cumulative default probability for a company for years one, two, three and four are 3%, 6.5%, 10% and 14.5% respectively. i) What is the unconditional default probability for year four? _ _ _ _ _ ii) What is the default probability for year four conditional on no default in earlier years? _ _ _ _ _ _ _ _

a CDO created from CDSs is known as a _ _ _ _ _ _ CDO.

In a CDS with a notional principal of $100 million the reference entity defaults. The payoff to the buyer of protection when the recovery rate is 30% is: choose one)

Which of the following is not true? choose one)

The recovery rate of a bond is normally defined as: choose one)

Which of the following happens when default correlation of the companies underlying a CDO increases? choose one)

Which of the following is true? choose one)

The number of companies underlying the CDX NA IG index is: choose one)

In a one-year forward contract on a CDS that will last five years, what happens if there is a default during the first year? choose one)

The companies underlying the iTraxx index are: choose one)