Problem
Consider a corporate bond, with face value $100, which issues semi-annual coupon payments at an annual-coupon rate of 2%, where the last payment is a coupon payment plus face value.
Currently, the market price of this bond is $97 and the probability of default is 22%.
In the event of default, bond-holders will recover a fraction 0.57 of the PV of outstanding bond payments.
Calculate the current Credit Default Swap premium.