What would you expect to happen to the value of the swap

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Reference no: EM131240280

How does a 5-year nth-to-default credit default swap work? Consider a basket of 100 reference entities where each reference entity has a probability of defaulting in each year of 1%.

As the default correlation between the reference entities increases what would you expect to happen to the value of the swap when (a) n = 1 and (b) n = 25. Explain your answer.

Reference no: EM131240280

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