I'm trying to implement CreditGrade in python, from the msci Technical Notes (https://www.msci.com/documents/10199/dd31bcce-6fe3-47b7-9fb7-10c4c8f750ba) but I'm running into some comprehension trouble (if it's too much of a basic problem, I'll repost in SE's Personal Finance).

The asset volatility is given by : sigma = sigma_star * (price_star / (price_star + LD) )

I'm understanding that the sigma_star and price_star are there to keep volatility more stable over time, but I'm not sure to understand how to compute them (the point 3.1 in original Tech Notes) at time t:

  • is sigma_star only the standard deviation of the last 1000 day's returns ?
  • What about the price_star therefore ? Is it the share price at t (and S_0 is therefore the price at the beginning of the 5-y CDS-quote, as in 3.1) ?

Thank you, again sorry if it's supposed to be basic knowledge, I'll move it if necessary.


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.