Consider two firms,each of which has a distance-to-default of 2.The correlation of default of the two firms is $$\rho = 0.5$$ .Assuming bivariate normality,what is the value of a $100 notional first-to-default basket option on these two firms,if the discount rate is zero?
A)$1
B)$2
C)$3
D)$4

Question

Quizplus · Accepted Answer

The Answer is D

Consider Two Firms,each of Which Has a Distance-To-Default of 2 ρ=0.5\rho = 0.5ρ=0.5

Consider Two Firms,each of Which Has a Distance-To-Default of 2 $\rho = 0.5$