Question

"The position of a buyer of a credit default swap is similar to the position of someone who is long a risk-free bond and short a corporate bond." Explain this statement.

   "The position of a buyer of a credit default swap is similar to the position of someone who is long a risk-free bond and short a corporate bond." Explain this statement.

Options, Futures, and Other Derivatives

Options, Futures, and Other Derivatives

John C. Hull 10th Edition

Chapter 25, Problem 17

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The buyer of a CDS pays regular premiums to the seller in exchange for protection against the default of the underlying bond or loan. Now, let's break down the statement: Show more…

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"The position of a buyer of a credit default swap is similar to the position of someone who is long a risk-free bond and short a corporate bond." Explain this statement.

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