A First-To-Default (FTD)basket Option Pays Off When Any One of the Companies

question 15

Multiple Choice

A first-to-default (FTD) basket option pays off when any one of the companies in a credit basket defaults.The price of the FTD basket decreases when

• A)The credit quality of any issuer in the basket declines.
• B)The correlation of default across names in the basket increases.
• C)The correlation of default across names in the basket decreases.
• D)The volatility of credit spreads for names in the basket increases.

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Definitions:

Calcite

A mineral made of calcium carbonate (CaCO3), one of the most common minerals on Earth's surface and a primary component of limestone.

Pyroxene

One of a group of mostly dark, single-chain silicate minerals.

Poorly Sorted

Poorly sorted sedimentary materials are those in which particles of many different sizes are mixed together, indicating a rapid deposition or varied environmental conditions during formation.

Variety Of Rock Types

A classification indicating the diversity of rock forms in a particular area, based on mineral composition and formation process.