Credit Risk in Bonds Involves Uncertainty About Whether the Bond

Credit risk in bonds involves uncertainty about whether the bond will default (default risk) , and uncertainty about the value of the bonds when they default (recovery risk) . In order to profit from a view that recovery risk will worsen, you would

A) Buy a credit default swap (CDS) and sell a digital default swap (DDS) .
B) Sell a credit default swap (CDS) and buy a digital default swap (DDS) .
C) Buy a credit default swap (CDS) and buy a digital default swap (DDS) .
D) Sell a credit default swap (CDS) and sell a digital default swap (DDS) .

Correct Answer:

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