[2008]Topic 49: Credit Risks and Credit Derivatives 相关习题 default, holding, manager, amount, credit

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AIM 1: Calculate, using the Merton model, the value of a firm’s debt and equity and the volatility of firm value.

1、Suppose a fixed income portfolio manager buys a risky bond issue with a face amount of $100 million that matures in one year. To hedge the credit risk that the issuer of the debt will not pay the full amount, the debt holder buys a credit default put on the value of the issuing firm. What are the payoffs for holding a risky bond and the credit default put, if the value of the risky firm is $80 million? The risky debt payoff is:

A) $80 million and the credit default put payoff is $0 because it is out-of-the money. 

B) $20 million and the credit default put payoff is $80 million. 

C) $80 million and the credit default put payoff is $20 million. 

D) $100 million and the credit default put payoff is $20 million.

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The correct answer is A

Bankruptcy, obligation default, and failure to pay are listed as default triggers by the International Swaps and Derivatives Association. A downgrade from a ratings agency is not.

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The correct answer is B

Counterparty risk describes the risk that one party does not fulfill their credit derivative agreement. Pricing risk describes the problems associated with the accuracy of complex models that price credit derivatives. Liquidity risk occurs as a result of the lack of interest in the secondary market for credit derivative contracts customized for other entities. Operational risk is the result of off-balance sheet treatment of credit derivatives, which can create excessive credit risk exposure for the firm.

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27、It has been 90 days since the last coupon payment on a default swap. The notional principal is $10,000,000, and the reference price is 100%. The final price is estimated at 40%, and the annual coupon rate was 8%. What is the cash amount to settle the swap?

A) $5,800,000.

B) $9,040,000.

C) $5,200,000.

D) $4,600,000.

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The correct answer is A

The settlement of the default swap is the notional principal times the reference amount minus the final and accrued interest.

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28、Which of the following is NOT listed as an International Swaps and Derivatives Association default trigger for payment under a credit default swap?

A) A downgrade from a ratings agency.

B) Bankruptcy.

C) Obligation default.

D) Failure to Pay.

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The correct answer is A

Buyers and sellers determine the size and maturity of a credit default swap.

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25、Credit derivatives have their own unique risks. All of the following are risks associated with credit derivatives EXCEPT:

A) counterparty risk.

B) default risk.

C) operational risk.

D) liquidity risk.

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The correct answer is B

Default risk is associated with reference assets. Risks specially associated with credit derivatives include: liquidity risk, operational risk, counterparty risk, and pricing/model risk. Liquidity risk is the result of a contract’s uniqueness. The potential of traders or investors to improperly use credit derivatives is operational risk. The risk that one party may not live up to their end of the contract is counterparty risk. Finally, the complexity of pricing credit derivatives can result in pricing/model risk.

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26、What risk describes a credit derivative buyer or seller NOT fulfilling their agreement?

A) Pricing risk.

B) Counterparty risk.

C) Liquidity risk.

D) Operational risk.