Pricing
Pricing of credit derivative is not an easy process. This is because:
- The complexity in monitoring the market price of the underlying credit obligation.
- Understanding the creditworthiness of a debtor is often a cumbersome task as it is not easily quantifiable.
- The incidence of default is not a frequent phenomenon and makes it difficult for the investors to find the empirical data of a solvent company with respect to default.
- Even though one can take help of different ratings published by ranking agencies but often these ratings will be different.
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