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Say the CTD's recovery is 40%, when calculating bond future's jump to default, should it be 1) or 2)

1) (future no. of contracts * contract size * 0.4 - ctd market value)/conversion factor

2) future no. of contracts * contract size * 0.4 - ctd market value/conversion factor

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  • $\begingroup$ It is equivalent asking if you are long a bond future, if the bond defaults, will the conversion factor be in play for your recovery market value? $\endgroup$ – tennisboy Nov 14 '19 at 3:22

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