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36 views

Volatility of CDS

I have calibrated a stochastic intensity CIR model to CDS data. The model reads $d \lambda_t = \kappa(\theta-\lambda_t)dt+\sigma \sqrt{\lambda_t} dW_t$ When calibrating the parameters I get ...
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0answers
24 views

Interest Rate Differentials, CDS Differentials, Inflation Differentials

Is there any academic literature relating the difference in interest rates between bonds of the same tenor in different countries with the inflation differential, CDS differential, and risk premium ...
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0answers
27 views

Bootstrapping bond spreads as in the standard CDS model

Suppose that we have a spread curve $\boldsymbol{s}:=(s_1, ..., s_n)$, where $s_i$ are CDS par spreads. Moreover, assume the standard ISDA model framework, i.e. piecewise constant forward / hazard ...
2
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1answer
63 views

What is the Difference Between a Credit Default Swap and a Bet

Reading the wikipedia page for derivatives on 00:02 E.S.T March 21 2016, a credit default swap (CDS) is summarized as being "A credit default swap (CDS) is a financial swap agreement that the seller ...
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0answers
48 views

Credit Valuation adjustment (CVA) Hedges

I need to understand once CVA Desk has CVA number(Bilateral or Unilateral) for a Counterparty, how does it take hedge position. for Eg: if CVA charge for my bank to JPM is 100K Dollars. What does ...
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1answer
122 views

CDS spread scenarios from historical market data

I'm searching for information on the best way to generate scenarios to be used in VaR or ES calculations, for CDS spreads. Given that we need significant historical data in order to achieve a decent ...
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2answers
99 views

Where to get price data on Credit Default Swaps?

I trust market-driven CDS more than credit ratings. Where can one get the CDS of corporate bonds of major companies? Are there any good internet links? If charts on the historical end-of-day prices ...
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0answers
48 views

How are CDS prices calculated for financial institutions?

If you need to estimate the fair price of a credit default swap on a financial institution, can it be done? Typical structural models tend to break down for the complex debt and asset characteristics ...
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0answers
45 views

Where can I find bonds time series?

I want to study dependence and correlation between bonds and CDS. I have already found a large CDS database of time series there: www.datagrapple.com I am looking for such a similar database (with an ...
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0answers
14 views

CDS Premium table Interploation for the Arrear case

If CDS spreads are given for say year end 1,2,3,4,5 .That means these premium payments are made in arrears. In that case we need to apply interpolation tools. But for which particular points do we ...
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0answers
50 views

Fair Price CDS Spread for a Bank

I have been using CreditGrades to calculate fair one year CDS spreads for firms. However, the authors of the model explicitly say that the model does not hold for banks or financial firms. If I need ...
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0answers
31 views

Construction of bond portfolio represented by a CDS-Index

Markit publishes investable basket CDS indices. These are indices intended to track the credit risk of a basket of issuers (e.g. in the case of iTraxx Europe Series 24 these are 125 names) in an ...
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2answers
58 views

Can CreditGrades CDS Pricing Model be used for financial firms?

For Canadian banks, the CDS market is very illiquid and inactively traded. I want to get an estimate for the spread for a one year CDS on the Bank of Montreal. I was going to estimate this using the ...
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1answer
76 views

CVA as a running spread - risk annuity calculation in the Monte Carlo framework

I have simulated future term structures in the one-factor Hull-White model and calculated the CVA of a particular trade (let's say, now I have it in absolute value, in dollars). However, I want to ...
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2answers
71 views

How does tranching cause leverage?

I've read that leverage is created with the tranches of a CDS index because the more junior tranches have more risk than the index. I get that the more junior the tranche the more the risk, but I don'...
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1answer
134 views

How to interpret this CDS spread sensitivity pattern?

From page 27, Table 6: Why are sensitivities of CDS slightly negative before the maturity of the CDS? I do not get the intuition: if I am long a 5-year CDS, the spreads <5y increase, and the ...
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1answer
80 views

Explain equation to calculate CDS spread

I've come across this equation in a text and can't figure out what part of it is doing. (Using quarterly installments) $\frac{1}{4*10^4}s^t \sum\limits_{u=1}^{4t} p_{0.25u}[(1-\pi_{0.25u}) + \frac{...
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2answers
167 views

Extracting Default probability from a single CDS

I have to find the CDS's default probability using the simplest Poisson Process (intensity constant). I'm wondering how to get this estimate if I have only a CDS with maturity 5years. If I had ...
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0answers
24 views

how does a bond maturing affect the pricing of the corresponding CDS?

if a bond matures, and there is no other existing bond from the legal entity that has not matured. Then how does that affect the CDS that corresponds to that bond?
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1answer
194 views

Calibration Merton Jump-Diffusion

Consider the following SDE $dV_t = rV_tdt +\sigma V_t dW_t + dJ_t$ where $J_t$ is a Compound poisson process with log-Normal jump size $Y_i$. How am I supposed to calibrate this model to CDS spreads?...
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1answer
177 views

Why can CDS indices be used as a bond market index?

I don't understand why the iTraxx indices family, which are credit default swap indices, are in practice often used to gauge the bond market. How are CDS prices related to bonds prices? And what other ...
3
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0answers
63 views

Dynamic Hedging for a Bond

Sorry if this question is duplicate. Analyzing the scenario to hedge bond credit risk with CDS. but if Bond price changes CDS notional will not change. is there any way i can hedge this ?
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1answer
75 views

Why normalize only data for CDSs for PCA?

I'm reading a Credit Suisse Research Report on PCA. The report says that to preprocess the data, you should "Centre data (and normalize when considering CDS data)." Why would you only normalize ...
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0answers
31 views

Alternatives to CDSs for default term structure?

The CDS market seems to be drying up, funding&liquidity issues are now prevalent over credit, so other sources for default probabilities are needed. What else is commonly used to obtain a ...
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1answer
208 views

When do CDS curves yield arbitrage opportunities?

In CDS markets we can sometimes observe inverted CDS curves or unusually steep curves. I am just wondering at what level certain curves become non-realistic. E.g. if we have 500bp for the 1-Year ...
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0answers
127 views

CDS credit spreads vs default probability

What is the relationship between a CDS credit spread (as set by the CDS issuer) and the instantaneous default probability (as estimated by the CDS issuer)? I hear they are similar but not the same. ...
3
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0answers
57 views

Basket Default Swap (BDS)

I would like to understand better the $n^{th}$ to default pair spreads of a basket default swap containing $m>n$ entities. For example, consider 2 single name CDS's with same spread and same ...
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0answers
311 views

How to calculate Probability of Default from Survival Probability

I would calculate Probability of Default from Survival Probability. I want to know how they are related. This is how I think they are related: ...
2
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3answers
7k views

Implied probability from CDS spread

I have two tasks: 1) Given country's CDS spread draw implied probability of default. 2) Given probability of default calculate CDS spread. If possible, refer to any papers. Thank you in advance.
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1answer
434 views

How to estimate CVA by valuing a CDS of the counterparty?

I'm trying to estimate CVA of one of my derivatives by valuing a credit default swap (CDS) of my counterparty. However, I don't know how to set up the CDS deal (notional amount, maturity, etc.). ...
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0answers
644 views

A model to stochastic hazard rate and CDS spread term structure

I'm interested in the term structure of CDS spread. It's known that the Market CDS rate (fair CDS spread or T-maturity spread) of a CDS contract initiated at $s$, maturity $T$ and recovery function $...
2
votes
1answer
398 views

Hedging bond with CDS of different maturity

Say I buy a 10-year bond with a notional of 100k. To hedge my credit risk entirely I could buy a 10-year CDS, also on a notional of 100k. Now, if there are only 5-year CDS trading and no 10-year CDS, ...
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2answers
1k views

CDS Spread and Par Bond Yield Spread

It is claimed that the credit default swap (CDS) spread should approximate the risky par bond yield or coupon rate spread from the riskless bond on the same entity. This comes about when we assume ...
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2answers
329 views

Why does the price of a convertible bond go up if the CDS spread goes up?

Looking at convertible bond prices in a commercial pricing tool, which is based on a model of Black-Scholes volatility plus a Poisson process of jump to default, I noticed that increasing the spread ...
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1answer
1k views

What is Base- vs. Implied Correlation of a CDO tranche?

What is the difference between Base Correlation and Implied Correlation for a CDO tranche?
3
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1answer
95 views

CDS - Accumulated Default Risk?

Say I issue insurance contracts covering fire damage in personal households. Fires occur with a probability of $x$% in a household (and they obviously occur independently from one another). If the ...
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3answers
1k views

CDS Spreads and Equity Volatility

Why does CDS spreads track the implied volatility on equities? What is the fundamental relationship that would keep the two inline from deviating too far from each other? My speculation: Could it be ...
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1answer
1k views

Documentation of the ISDA CDS standard model

I have to validate the use of the ISDA CDS standard model. Don't understand me wrong - I am sure that the ISDA model is "good" I just need to know what it is in detail. I can download an Excel-...
0
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1answer
412 views

Interpolation on CDS rates

I am just wondering if there is any way we could calculate a CDS Spread (not harzard rate) on a CDS curve. Most of the papers that I have come across so far discuss about interpolating the hazard ...
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1answer
2k views

IMM dates in excel

I need to get the IMM dates in excel. IMM dates are defined as the third Wednesday of every March/June/September/December.
3
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1answer
727 views

Pairs trade CDS contracts using cointegration

Recently I have looked at some sovereign CDS spreads (of the Nordic countries to be precise) and have tested for cointegration in the levels (i.e. untransformed) and logs of the spreads. Tests ...
3
votes
2answers
727 views

What is a standard credit default swap contract and where can I find spread data? What alternatives exist to judge creditworthiness?

I'm doing some work for a company and one of my tasks is to research credit default swaps on banks and to write a page about them explaining what they are and how they're used to evaluate the banks' ...
7
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4answers
949 views

What is the connection between default probabilities calculated using the credit rating and the price of a CDS?

I'm working on a tool to price Credit Default Swaps. I've already done the standard pricing tools. I'm working on a pricing tool which uses the credit rating for the default probabilities used in the ...
6
votes
2answers
2k views

Market Value of a CDS

I need to model the market value of CDS in a portfolio. My current approach is to calculate the present value of the future spread payments - does anybody have a better idea to solve the problem? ...
4
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1answer
170 views

Where can I find the standard discount curves for the standard CDS model?

Where can I find the standard discount curves for the standard CDS model? In particular I'm keen to see if ZAR is a supported currency yet...
9
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4answers
4k views

Quanto CDS modeling

What is the market standard for pricing quanto CDS (i.e. CDS which pays the contingent leg in different currency than the pricing leg)?