Economy – Quantitative Finance – Pricing of Securities
Scientific paper
2010-01-05
J. of Credit Risk, vol. 1(3), p. 61-70 (2005)
Economy
Quantitative Finance
Pricing of Securities
9 pages, 2 figures
Scientific paper
We derive an arbitrage free relationship between recovery swap rates, digital
default swap spreads and conventional CDS spreads, and argue that the fair
forward recovery rate used in recovery swaps must contain a convexity premium
over the expected recovery value.
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