Question on market-implied DPs (p.282-283)

[Anonymous]

Hello, everyone

I am new here.
I registered because I need help making sense of the material.

I have Exam 3 Handbook (Updated: April 2011), don’t know if that is the current one, I bought mine 2 years ago.

I cannot understand some parts of CDS implied default probabilities material.

In particular, on page 282 in the bottom paragraph some dates for promised cash flows are given, but they seem to me to be incomplete + wrong! For example, one of the bonds matures on 16-01-2007, so why the dates 16-01-2004, 16-01-2005, 16-01-2006 and 16-01-2007 not mentioned? And where doese 19 November 2005 come from? This must be typos!

Also, on page 282, formula III.B.4.14: Why sum of bond prices is multiplied by “s”? (BTW, there is a typo, last T should be T(K), not T(N)). Should I interpret the sum of B(0, T) as the notional of the underlying reference security for the CDS?
And why do we multiply E(0, T(K)) by (1-R)? Aren’t we, as protection byers, supposed to receive par value of the reference security in the event of default? I cannot even understand what (1-R) stands for in this respect…

I am totally at loss here. Please help.

[Author]

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