Suppose that the risk-free zero curve is flat at 0.05 per annum with continuous compounding...
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Suppose that the risk-free zero curve is flat at 0.05 per annum with continuous compounding and that defaults can occur half way through each year in a new two-year credit default swap. Suppose that the recovery rate is 0.27 and the default hazard rate is 0.01. Estimate the credit default swap spread. Assume payments are made annually.
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