One of the differences between a CDS and a bond is the funded vs unfounded nature of the two. Given that is the case, at least some portion of the CDS-Bond basis should be driven by an implied repo/funding rate for the bond.
My question is the following:
- What are some approaches to calculating the implied funding rate using the CDS - Bond ASW basis?
- In the case of a bond trading at a premium, how do we think about “par-adjusting” the bond when we calculate the basis? I have seen some papers mention something called the C-Spread, which adjusts the basis by the probability of default from bond/cds markets.
Are there any good papers on either of these. The goal is to arrive at a decent approximation...not necessarily something especially rigorous.