If the expected recovery values decreases, then the size of payment upon the occurrence of a credit event will increase. This will increase the protection payment.

Question

Quizplus · Accepted Answer

As the expected recovery value decreases, the amount that needs to be paid out to protect against a credit event increases. This is because if the recovery value is lower, the protection payment needs to cover a larger portion of the outstanding debt.

If the Expected Recovery Values Decreases, Then the Size of Payment