|
The 3-year and 4-year asset swaps for a company have spreads of 100 and 125 basis, respectively, for contracts with annual payments, respectively. The underlying bonds entail a coupon of 4% per annum, payable annually. The term structure of interest rates is flat at 2.5% with continuous compounding. The recovery rate is 40%. Defaults can take place halfway through each year. The unconditional risk-neutral default probability is q1 in years 1 to 3 and q2 in year 4. Question：Estimate q1 and q2.
| 
