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!
Quantitative Finance Stack Exchange is a question and answer site for finance professionals and academics. It only takes a minute to sign up.Sign up to join this community
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.