Hi
I have 2 questions regarding this topic.
- Question about value of debt - option analogy:
Kindly refer to the screenshot: http://prntscr.com/71cgy3 I don’t understand the payoff when the put is in the money. When the put is in the money, we will receive K from the risk free bond. We will also deliver the assets and receive K, correct? Then shouldn’t the payoff be K+(K-A_T)? Can someone help to explain why the payoff is K-(K-A_T)?
- Question about conflict of interest in issuer-pay ratings:
Kindly refer to this screenshot: http://prntscr.com/71cwbg I thought issuer pays credit ratings should give conflict of interest between credit rating agencies and issuers. Why is it not so?
Thanks.