credit risk

[mensatrader]

Hi all

assume that a trader buys a USD denominted Mongolian government note. As the note will trade at an interest rate differential with the default-free rate, it is convenient to view the payment differential s a form of forward American binary on the default by the Mongolian government. The amercan binary's face value could be estimated by the total paper minus some recovery rate?

Can someone please help explain why that is like a foward american binary on the default??

many thanks

 

[Martinghoul]

Because you either get paid or you don't, at some future date.

 

[mensatrader]

Because you either get paid or you don't, at some future date.

Thanks man. But we for sure receive the interest payment regularly, right?

Besides, why this is a american binary on the default instead of the binary on not default?

 

[Martinghoul]

Thanks man. But we for sure receive the interest payment regularly, right?

Besides, why this is a american binary on the default instead of the binary on not default?

Well, one fine day you might stop receiving interest also...

What's the difference? A binary on a default is the same thing as a binary on a non-default, innit?

 

[mensatrader]

Well, one fine day you might stop receiving interest also...

What's the difference? A binary on a default is the same thing as a binary on a non-default, innit?

thx mate