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Unformatted text preview: be x . With x , two bonds default together and the senior tranche is paid 100. If only one bond defaults or neither defaults, the senior tranche gets 140. To achieve a target spread of 40 bp, the price must be such that 140 P-1 = 0 . 0040 P = 140 1 . 0040 100 x + 140(1-x ) = P x = 1 . 39% 1...
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This note was uploaded on 10/06/2011 for the course FIN 448 taught by Professor Weiyang during the Spring '10 term at Rochester.
- Spring '10