Which of the following statements is not true about a credit spread option?
A)it is an option on the spread of a bond over a reference bond
B)its value would change with changes in investors' perceptions of a party's credit quality
C)it requires payment of a premium up front
D)it requires that the underlying bond be relatively liquid
E)none of the above

Question

Quizplus · Accepted Answer

All the statements (A, B, C, D) provided about a credit spread option are true, which makes option E (none of the above) the correct choice. A credit spread option is indeed an option on the spread between a bond and a reference bond, its value changes with perceptions of credit quality, it requires an upfront premium, and it generally requires that the underlying bond be relatively liquid for accurate pricing and risk management.

Which of the Following Statements Is Not True About a Credit