Implied Under the Assumption of Risk Neutrality
We have several posts related to the calculation of price-implied default rates under the assumption of risk neutrality and several posts related to simple CDS calculations.
Those posts have involved discrete, single-period problems, where there are only two dates of interest: today and a future date where an uncertain claim or cash flow will be realized, i.e., when bankruptcy would occur.
We’ve focused on binary models and will continue to do so here. In fact, to analyze a two-period problem, we’ll just build upon our… Read the rest
