A Second-To-Default (STD) Basket Option Pays Off When Any One

question 18

Multiple Choice

A second-to-default (STD) basket option pays off when any one of the companies in a credit basket defaults. The price of the STD basket increases when

• A) The credit quality of any issuer in the basket improves.
• 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 decreases.

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Definitions:

Pension Expense

The company's cost in a specific period for providing pension benefits to employees during that period.

Funding Agency

An organization that provides financial support for various projects or enterprises.

Unrecognized Prior Service Cost

Costs related to pension plan benefits that have been earned by employees in prior periods but have not yet been recognized in financial statements.

Pension Expense

The cost recognized in an accounting period related to an entity's pension plan, which includes service cost, interest cost, expected return on plan assets, and any amortization.