What's new

unconditional default probabilities

owias

New Member
Assume that a 2 year corporate bond pays a coupon of 6 % per annum semi annually and has a yield of 8%. The yield for all maturities on risk free bonds is 4% per annum (expressed with continuous compounding). Assume that defaults can take place every year (immediately before coupon payment) and the recovery rate is 50%.

Required

Estimate the default probabilities of the bond using an exact estimation assuming that the unconditional default probabilities are the same on each default date
 
Top