3-Month Eurodollar: $ 1 million —> 1bp change —> $25

30 Year Treasury —> at least 15 years; $100,000 face

 C.Bond=Call Option + Straight Bond
Swaps
Swap Value floating payor = fixed bond—floating bond

Long the swap

Short the Swap

CDS

Total Credit Risk:

- Counterparty Risk
- See Correlation between
underlying asset & counter-
party
Not correlated:
- only one of them default at
one time

KMV Model

Equity price: call option

Strike price: debt

Promised vs Exp Ret

Breakeven Analysis (Conv)