The hazard rates for A and B are 1% and 2% respectively. A contract pays you $1 if A defaults earlier than B. What is the correlation that minimizes the price of the contract?

I have not studied the Gaussian copula model yet, but intuitively I would say that the price of the contract is lowest (contract has the least value) when the correlation is 1 because in that case the defaults time for A and B will follow the same movements around the mean and B is more likely to default earlier than A because its hazard rate is higher.


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