The material states the value of the basket CDS decreases as the correlation of the underlying references increases. This seems counterintuitive to me. If the probability of default increases as a result of increased correlation among references, wouldn't the basket CDS be MORE valuable? The protection against a more probable default event seems to be more valuable here.
What am I missing? Are we talking about 'value' relative to the buyer or seller?
Thanks,
Chad
What am I missing? Are we talking about 'value' relative to the buyer or seller?
Thanks,
Chad