Credit Default Swaps on AMR Corporation: Cash or Credit?

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This case puts the students in the shoes of Jeff Thomas, a high-yield credit research analyst for a hedge fund. Thomas' portfolio manager has asked him to come up with a potential trade idea for AMR Corporation (the parent company of American Airlines) using a credit default swap (CDS). Thomas wanted to gauge whether the CDS spread prevailing in the market was too high or too low relative to AMR's credit outlook. He was going to use both structural and reduced form CDS pricing models and compare them against the prevailing CDS spreads in the market. More importantly, Thomas needed to come up with a trade recommendation.
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