为什么还要减1million

问题如下：

The five-year CDX NA IG Index (125 companies) is quoted as bid 161 bps and ask 165 bps. A risk manager wants to sell $1 million of protection on each company. At the beginning of the third year before the annual protection payment, one of the companies defaults. Assuming no other defaults, the manager’s cash flow for the third year is closest to:

选项：

A.

$996,400 inflow.

C.

$957,200 inflow.

D.

$957,200 outflow.

解释：

The investor will sell CDS protection on the 125 companies in the index for 161 bps per company.

The annual receipt by the seller is

0.0161 × $1,000,000 × 125 = $2,012,500.

However, because one company defaulted before the protection payment, the annual receipt by the CDS seller will be reduced by

$2,012,500 / 125 = $16,100.

In addition, the seller will have to pay $1 million to the CDS protection buyer as a result of the default. The CDS seller’s cash inflow for the year is computed as $2,012,500 − $16,100 − $1,000,000 = $996,400.