Helwege, Jean; Maurer, Samuel; Sarkar, Asani; Wang, Yuan - 2009
of CDS contracts covering the firm’s obligations complicates the way
in which CDS claims are settled. In the event of … event of default, the recovery rate on
4
the bond is 40%. Then, with physical settlement, the CDS buyer gives the bond … credit event.
5
With so much trading of a short supply of bonds, the law of one price would not hold: CDS
contracts on …