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I've recently been trying to work on and understand the concepts around CDS. By making simplifications (flat hazard rate, flat forward rate), I wanted to compare the values I could obtain by manual calculations for the NPV of the couponsLeg and the protectionLeg with the one I could obtain by using QuantLib.

I got exactly the same value for the protectionNPV but a different one for the couponLeg. Of course, the couponLeg is the sum: defaultAccrualNpv + premiumNPV

I have the right values for the premiumNPV value but not for the defaultAccrualNpv. Looking at the code, I discovered the existence of a default halfDayBias. Could someone explain to me what is the logic behind this bias? In my opinion, this bias just creates a half-day overlap between the different periods.

Thanks you in advance for your help

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  • $\begingroup$ so what is your question? Are you trying to understand the purpose of AccrualBias? Have you looked at the comments in rkapl123.github.io/QLAnnotatedSource/d3/dfb/… ? Have you tried looking at cdsmodel.com/documentation.html , in particular cdsmodel.com/assets/cds-model/docs/… ? $\endgroup$
    – Dimitri Vulis
    Sep 25 at 14:42
  • $\begingroup$ Yes, I'm trying to understand the purpose of the Accrual Bias. I was not able to see something talking about this bias in the cdsmodel documentation and I don't understand the comment following the HalfDayBias definition in quantlib ("as in [1] formula (50), second error term is included") $\endgroup$
    – Sakhr
    Sep 25 at 14:50
  • $\begingroup$ Ok, it seems there is a mistake in the comment, i think it should be "as in [1] formula (49), second error term is included" but i still don't understand the purpose of this bias $\endgroup$
    – Sakhr
    Sep 25 at 15:35

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