Question

how to make a portfolio with bond and credit default? (how many/much contract to add)

how to make a portfolio with bond and credit default? (how many/much contract to add)

Homework Answers

Answer #1

There are many ways to make a portfolio one of them being making a portfolio with bond and credit default swap.

In a credit default swap (CDS) there is a swap buyer and a swap seller, where the swap seller will compensate the swap buyer usually the face value of the bond in the event of debt defaulting or any other credit event and the swap buyer pays to the swap seller a particular sum of money periodically.

Accordingly we must make a portfolio with bonds and the relevant number of credit default to compensate us in any credit event and we can constantly keep churning the portfolio i.e. keep on adding and reducing the CDS contracts according to the addition in the bonds.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
What is a credit default swap? How does it indicate the probability of default of a...
What is a credit default swap? How does it indicate the probability of default of a company? Explain
20 A portfolio manager purchased $4.5MM of credit default swap protection for International Co. with a...
20 A portfolio manager purchased $4.5MM of credit default swap protection for International Co. with a maturity of 5 years. International Co’s credit spread was 380 basis points when initially purchased but it widened to 520 basis points at the end of the first year. Give the rough calculation of the profit for the portfolio manager (ignoring the time value of money). Review Later $252,000 $170,000 $420,000 $555,000
You are considering purchasing bonds to add to your investment portfolio. Bond A is a 15...
You are considering purchasing bonds to add to your investment portfolio. Bond A is a 15 year bond that pays a $120 annual coupon. Bond B is a 20 year bond that pays a $80 annual coupon. Assume both bond terms started 2 years ago and that the discount rate is 10%. A. What are both bonds worth today? B. Would you purchase both, neither, or one of the bonds to add to your portfolio? Why?
8.6: How is default risk different from credit risk?
8.6: How is default risk different from credit risk?
Consider a five year credit default swap with notional value $1 billion on a bond with...
Consider a five year credit default swap with notional value $1 billion on a bond with risk neutral probability of default = 4% and loss given default = 30%. In the event of default, the protection seller must pay to the protection buy an amount equal to the notional value multiplied times LGD. Assume that all cash flows occur at the end of a year. Estimate the CDS spread (that is, the annual percent of face value to be paid...
deciding how much of a portfolio to invest in common stock bond and other investment instruments...
deciding how much of a portfolio to invest in common stock bond and other investment instruments is an example of tactical asset allocation active investing strategic asset allocation passive investing
discuss with example and diagram how is credit default swap used to hedge risks,
discuss with example and diagram how is credit default swap used to hedge risks,
a. Take a bond portfolio whose modified duration is -7; the portfolio's value is $1,000,000. How...
a. Take a bond portfolio whose modified duration is -7; the portfolio's value is $1,000,000. How      much will the portfolio value change if the yield rises by 1 basis point (0.01% or 0.0001)?    b. If you want to hedge this portfolio against an increase in yield (decline in value) using a different bond whose modified duration is -10, will you buy or sell this hedge bond? and how much in value (i.e. not principal amount) will you buy...
e. How many grams of HEPES (free acid) would you need to weigh out to make...
e. How many grams of HEPES (free acid) would you need to weigh out to make 1 L of 50 mM HEPES? f. How many mL of 1 M base (NaOH or KOH) would you need to add to bring the pH to 7.4? g. What components (and how much of each) would you add to a beaker to make 1 L 50 mM HEPES, pH 7.4.
Suppose I have a $1 million worth of bond portfolio whose duration is 20. If the...
Suppose I have a $1 million worth of bond portfolio whose duration is 20. If the interest goes up by 80 basis point, how much do I make or lose with my portfolio?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT