credit risk

agrawal.caamit
Posts: 7
Joined: Mon May 05, 2014 7:53 am

credit risk

Postby agrawal.caamit » Mon May 05, 2014 8:27 am

Credit spread option has a notional amt of $50 mn wid a maturity of 1 yr. the underlying security is a 10 yr, semiannual bond with a 7% coupon and a $ 1000 FV. the current spread is 120 basis point against 10 yr treasury. the option is a European option.wid a strike of 130 basis point. if at expiration treasury yield have moved from 6% - 6.3% and the credit spread had widened to 150 basis, what will be the payout to the buyer of.this credit spread option.

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

credit risk

Postby edupristine » Tue May 06, 2014 7:20 am

Please always provide a source of the question.

agrawal.caamit
Posts: 7
Joined: Mon May 05, 2014 7:53 am

Postby agrawal.caamit » Thu May 08, 2014 2:08 am

question is from garp practice question bank.


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