Assume that the hazard rate for a company is and the recovery rate is...
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Assume that the hazard rate for a company is and the recovery rate is R. The risk-free interest rate is 5% per annum. Default always occurs half-way through a year. The spread for a five-year plain vanilla CDS where payments are made annually is 120 basis points and the spread for a five-year binary CDS where payments are made annually is 180 basis points. Estimate and .
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