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

question 5

Multiple Choice

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

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