Example 12, Page 24, Reading 29, Vol 4

Binary Credit Option: Why is the Strike price $1000 per bond ? Where does it say so ? Or should we assume strike price = current value if no info is given abt strike price ?

I don’t have the book, but they are probably just saying that the options pay out par when a credit event happens. What other number would you use?

The text says that the strike price could be a fixed number or a strike spread. But since in this particular problem, neither was given, we assume the bond pays out at par if the ratings downgrade occurs.

Yeah - makes sense… Thank you !