= Solution
{c}
As insurance against <credit default>, the payment is the positive shortfall of recovery below face value:
$$
H=\left(1-\frac{X_T}m\right)^+=\frac1m(m-X_T)^+.
$$
Thus the <credit default swap> in this question is one $m$th of a <European put option> on the firm value. Its price is
$$
\boxed{V_{\rm CDS}=e^{-rT}\Phi(-d_2)-\frac{x_0}m\Phi(-d_1).}
$$
Equivalently, adding this insurance to one corporate bond produces a sure unit payment, so its price is $e^{-rT}$ minus the bond price from part (b). This also fixes the positive orientation of the printed “difference”: insurance compensates face value minus recovery.
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