Recovery Swaps

Details Recovery Swaps Recovery Swaps

2010-01-05

arxiv.org/abs/1001.0783v1

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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