medium · Quantitative Finance qf-core
A quant is pricing a 2-year Credit Default Swap (CDS) using a reduced-form model. The hazard rate is λ = 0.04 (constant), the recovery rate is R = 40%, and the risk-free rate is r = 5%.
Using the standard approximation, what is the fair CDS spread s in basis points?
- 160 bps
- 150 bps
- 400 bps
- 240 bps
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