Question
Show that the spread for a new plain vanilla CDS should be $(1-R)$ times the spread for a similar new binary CDS, where $R$ is the recovery rate.
Step 1
A plain vanilla CDS is a financial derivative that provides protection against the default of a reference entity, with a payoff that depends on the loss given default. A binary CDS, on the other hand, pays a fixed amount upon default, regardless of the actual Show more…
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