Company CPN and dealer SwapFin are engaged in three transactions with each other. From SwapFin's perspective, the market values are as follows:
Explain the consequences to SwapFin if CPN defaults with and without closeout netting. Within your answer, explain what is meant by cherry picking.
Suppose you enter into a bet with someone in which you pay $5 up front and are allowed to throw a pair of dice.
You receive a payoff equal to the total in dollars of the numbers on the two dice. In other words, if you roll 1 and a 2, your payoff is $3 and your profit is $3 - $5 = -$2.
Determine the probability associated with a Value at Risk of $0.