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Example: assume the current HY CDX is with 5% coupon. The spread is around 300bps, with a duration of around 4 years.

Would you pls help me to understand why we can proxy the HY CDX price as 100+4*(5%-3%)=100+duration*(coupon-spread)=108 Thank you!

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This "proxy" is too approximate, but is an OK first approximation. (By the way, CDX HY is "officially" quoted as price, not as spread.)

You need to run the ISDA CDS standard model. You can actually download an Excel add-in, but it would be a more useful exercise for you compile the C++ code. Then you you'll have the "official" conversion between the market standard quote spread and the upfront. Rememeber to use interest rate curves from the right historical date.

IHS Maikit provides a converter web page. You can plug in your spread and get the index price. Read the ISDA documentation to understand how it works.

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  • $\begingroup$ would you pls help me understand why this approximation makes sense?@dimitri Vulis $\endgroup$ – Lisa May 1 at 18:43
  • $\begingroup$ Think of the quoted spread as the annual cost of protection if the upfront fee was 0. But practically, CDX IG index trades with 500 bps running coupon a year. Ignoring convexity, "spread 01" is the change in the upfront fee from 1 basis point change in the spread - think of this sensitivity, rather than unintuitive duration. Right now the HY series 36 index price is around 109.8% corresponding to spread around 280 bps - much less than 500, which is why the index price is above par. Conversely, if the price went below par, then the spread would go above 500. $\endgroup$ – Dimitri Vulis May 1 at 18:58

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