CFA Text- Credit Spread Derivatives

Ok- Volume 4- Reading 29- pgs 26 & 27- Example 14 #4 ( Credit Spread Call Option)- wouldn’t this also apply to Company X- the reason being that if they receive a credit rating downgrade, spreads will widen…making this call option an appropriate hedge? #5 (Credit Spread Forward)- same concept as above- if Company X receives a credit rating downgrade…its spread will widen…making our position ( credit spread will increase) the appropriate hedge? For the solutions for 4 & 5 they only list Company Z, but based on the reasoning above, wouldn’t you agree that Company X should also be included? …by the way, this is a great review question.

i guess you are right, but remember we have to answer “CFA WAY” also i think spreads may have already incorporated a threat of downgrade. but let’s say you can’t have in your portfolio anything below investment grade. In this case you don’t care about the spread, you care about the downgrade