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Cumulative probability of default on risky bond

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Uploaded by on Sep 12, 2008

If we are given two spot rate term structures (spot rates for Treasuries and for risky corporate bond), the question is, what is the 2-year cumulative probability of default (PD)? We take THREE STEPS: 1. Compute 1-year forward rates; 2. Compute marginal probability of defaults; 3. Compute the 2-year cumulative probability of default

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Education

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  • very intuitive presentation...

  • Actually i'm preparing a public selection as a financial statistician at the bank of italy.

    I find this exercise very helpful indeed! Thanks a lot bionic turtle!

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