I am getting confused as to how to exactly calculate the spread since sir said in lecture that we will equate PV of fee leg and PV of contingent leg and then we will change the seed value of lambda until they become equal and sir took the assumption that we will get spread from the markets.
But when I listened the audio podcast sir said that we will equate PV of fee leg and PV of contingent leg by changing the spread which means that we would have taken some lambda value (where this value came from?) for calculation of probabilities in both leg PV’s.
Yes initially we take a seed value of lambda and later on change it to equate both the legs.