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A Derivatives Dealer Has a Single Transaction with a Company

Question 7

Multiple Choice

A derivatives dealer has a single transaction with a company which is a long position in a five-year option.The Black-Scholes-Merton value of the option is $6.Suppose that the credit spread on five-year bonds issued by the company is 100 basis points.What is the dealer's CVA per option purchased from the counterparty?


A) $0.19
B) $1.19
C) $0.29
D) $1.29

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