Questions tagged [cds]

Credit Default Swap or CDS - a type of swap which purpose is transferring the credit exposure of fixed income products between parties. It works like an insurance policy, where protection buyer who makes fixed periodic payments, and a protection seller, who collects the premium in exchange for making the protection buyer whole in case of default. Most of CDSs are traded via OTC as single derivatives or index derivatives like iTraxx / Markit CDX

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39 views

Reproduce CDS Index Default Probability via Tranche [0,100] Probability

The tranche survival probability up to time $t$ between attachment $K_1$ and detachment $K_2$ is defined as $$Q(t,K_1,K_2) \quad=\quad 1 - \mathbb{E}[L(t,K_1,K_2)]$$ with tranche loss function $$L(...
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How to compute reference share price and reference volatility in CreditGrade?

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 ...
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CDS ISDA Pricing (usage of accrued in calibration)

I am looking to understand the ISDA CDS Pricing Model for a 1Y "Buy Protection" CDS with Coupon = Quoted Spread = 100bp. Numbers are from Bloomberg. Cash-Flow Matrix ...
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76 views

CDS volatility: daily return calculated by simple substraction (Pt - Pt-1)?

I am working on validating the CDS volatility generated by a third party risk engine. It appears that returns are calculated with simple substractions and adjusted for the CS01: (Price of the CDS ...
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90 views

Expected currency depreciation given sovereign default

A country may default on its government debt (in any sense, e.g. miss a payment) within the next year. How would one estimate the expected (under the risk-neutral measure) currency depreciation by ...
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1answer
63 views

How does buying a CDX and then taking a short CDS position generates alpha? [closed]

Can someone please explain to me how buying a CDX and then taking a short CDS position generates alpha? I am so confused.
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CDS pricing using intensity models incorporating liquidity

I want to price a CDS using an intensity based model, but I want to account for liquidity as well. General model: The default time $\tau$ is the first jump time of a cox process, and the survival ...
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180 views

CDS Quote Conversion - Quoted vs Par

Just to be on the same page, let me start with some nomenclature: Par Spread = Coupon for which the CDS has NPV=0, assuming a piece-wise constant hazard curve (considered in conjunction with all ...
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1answer
240 views

Quantlib CDS model

I have started working on CDS model using Quantlib and as a starting point, utilized code provided in GitHub Quantlib/Python examples with modifications in initial code as given at the end and have ...
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1answer
369 views

ISDA CDS model Upfront Fee

Can the ISDA CDS model be used for "legacy" CDS? I understand that it lets you convert from traded spread to upfront and back on the day CDS was traded but what about CDS that was traded 2 years ago ...
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478 views

CDS ISDA model/Bloomberg

I am becoming more acquainted with QuantLib as a platform. I've been using both the python implementation and QuantLib XL. As I have started to look at CDS, I would like to know if there is a ...
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46 views

Change in CDS and counterparty

How can CDS contracts be used in order to hedge (neutralize) CVA charge movements with respect to changes in the underlying rates for a counterparty? In here CVA is a proportion that’s subtracted ...
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1answer
414 views

Deriving default probability from CDS spread via stripping

I am currently trying to derive the cumulative probability of default from a CDS spread where the LGD is 30% and there are quarterly premiums including the accrued premium. ...
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249 views

Hedging a CDS sold

How would a bank that sold a CDS to a client hedge its position? Is there a replication method similar to what is done with option hedging or other methods used? Many thanks
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91 views

Reason for stale sovereign CDS spreads (e.g. Greece)

I have a dataset of CDS spreads for European sovereign from Thomson Reuters Datastream. I noticed for some entities in some timeframes, spreads are essentially stale. For example in the case of greece ...
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1answer
84 views

How to measure effectiveness of CDS hedging

In a fixed income emerging markets portfolio investing in Sovereign and Corporates, CDS on governement bonds are used for hedging credit risk. To be clear CDS are used to hedge both the exposure of ...
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78 views

CDX funded vs unfunded returns timeseries

I've been asked to provide a CDX.NA.IG unfunded total returns timeseries, for which I've been able to use a Bloomberg ticker LX01TUUU Index. This works fine - it's called an unfunded total returns ...
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2answers
258 views

“Where is my money”: CDS Sensitivities, Spreads and PnL Calculations

Trading CDS I experienced something unexpected: A half year ago I sold protection on a single name at a spread of 190bp The coupon was 5% and the contract had a maturity of five years. Using ...
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80 views

Properties of an iTraxx index

I am working on maintaining the market data of iTraxx indexes in our systems and I have the following questions: What events prompt change in series and version of an iTraxx index ? Is it after one ...
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1answer
526 views

Why z-spread differs from CDS spread in 1 period example

Suppose we have a 5% (paid-annually) coupon bond with 1-year to maturity. We also have a 1-year CDS with a single payment paid annually (running spread with zero upfront). Assume that the underlying ...
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128 views

Questions on CDS

I have a few questions on CDS and especially sovereign ones: I've read that usually CDS are generally traded in millions of notional value, which means that not everybody can purchase sovereign CDS, ...
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191 views

Return on a CDS portfolio

Good evening, I try to compute the performance of a portfolio of a CDS. I already know how to mark-to-market a CDS but typically, the first time you enter a CDS, you invest zero as the mark-to-market ...
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Why do CDS Spreads differ by currency?

last time using Bloomberg I found out that the CDS Spread for Italy 5Y CDS in USD was somewhere around 230bp whereas the Spread for Italy 5Y CDS in EUR was just around 130bp. I looked at other debtors ...
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509 views

Is Red Code unique per derivative instrument

Does RED Code (="Markit Reference Entity Database Code") uniquely identify the derivative that has been traded? Is it possible to get a derivative's ISIN code from RED Code?
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518 views

Do CDS have interest rate exposure?

For hedging purposes, do CDS have interest rate exposure? I've thought of CDS as a pretty direct proxy for credit risk, but on the other hand say if interest rates rise it would be harder for ...
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1answer
102 views

How is valuing corporate CDS different from sovereign CDS?

How are they different? I have done some corporate CDS valuations but I want to know how to value sovereign CDS. Thanks!
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1answer
176 views

CDS Spread sensitivity

I am computing HVaR for corporate bonds using CDS spread to approach credit risk. I have data on cds spread for different maturities along the bond life and I need the sensitivity to spread change for ...
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where can i get historical daily price data of counties (especially for turkey) CDS prices? [duplicate]

i need countries historical CDS prices (especially for Turkey) but i am failed to find. can anyone suggest me a website please?
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2answers
128 views

Why does/did a CDO need a “sponsor”?

I've been reading a lot of about the "Magnetar trade" (see pro-publica article here and the links therein, as well as this paper), and I'm slightly confused by the argument about how Magnetar (and ...
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2answers
144 views

CDS Indices Query

I'm just getting into Credit derivatives at the moment but I'm having a bit of trouble with the technicalities of CDS Indices(CDX etc.) My question is. Given that CDS indices have fixed lifetime, is ...
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1answer
402 views

Using Euro CDS for a USD transaction

I'm working under the assumption that CDS spreads are not as sensitive to currency as bonds. As long as default risk and FX risk are independent, CDS spreads in different currencies should not differ (...
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1answer
1k views

From quoted spread and coupon to upfront, and vice versa : which recovery rates and when?

Echoing the following question : Markit recovery rates : assumed vs real I would like to have a confirmation on my understanding on the matter. Markit provides data for CDS, namely, for tenors ...
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1answer
112 views

Is it possible to sell protection on own asset with CDS?

Is it possible for a company to sell protection on their own assets or own country bonds by CDS? The company can buy protection on those assets, but how about selling? I suppose it can not sell. Is ...
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552 views

Positive base arbitrage CDS vs Asset Swap

While I completely understand the negative base arbitrage when the base is defined as : $$Base = CDS - ASW$$ I am stuck on the possible arbitrage when the base is positive. Let's think with an easy ...
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819 views

What does rolling a CDS entail?

I saw the question What does "rolling" for a CDS contract mean? One answer says: Entering into a new contract when the old one expires. and another says: Rolling is the act of ...
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2answers
443 views

Importance of z-spread in CDS-Bond Basis trading

Consider the following: A bond with a 9% coupon and a price of $98. Let's say the zero swap curve is flat at around 7% (e.g. the zero swap curve is high because we're at the end of a business cycle). ...
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1answer
79 views

CDS protection/contingent leg pricing, taking expectation of interest and hazard rates

The Pricing and Risk Management of Credit Default Swaps, with a Focus on the ISDA Model Screenshot: Pricing protection leg of a CDS, by OpenGamma In the screenshot above, I am having trouble ...
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2k views

CDS Mark-to-Market

I am trying to calculate the Mark-to-Market of a CDS, and I want to know if what I did is correct. Let a CDS of maturity $T$, we suppose that the recovery $RR$, the discount rate $r$, and the hazard ...
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1answer
336 views

CDS Vs Credit Risk premium over risk free

Credit default swap is the premium you pay to protect against a credit default from your borrower. Would it be equal to the credit premium over risk free i.e. bond yield - risk free of comparable ...
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1answer
70 views

CDS for Funding

I was wondering if anyone is familiar with how credit default swaps can be used for corp funding and financing. I came across an old case where a bank created a funding structure for a client (asset ...
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1answer
336 views

Granger causality with stocks and CDS

I would like to take a closer look at stock prices and CDS spreads of different entities. Because both of them are nonstationary in levels, I use log stock returns and the first difference of the CDS. ...
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VAR models when examining relationships between financial markets

When researchers examine lead-lag relationships between credit default swaps and (as an example) stock markets, many use Vector Autoregressive Models (VAR). They want to find out what market "is ...
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1answer
4k views

What does “rolling” for a CDS contract mean? [closed]

I tried to google it but I only get results for ISDA intruducing a new rolling convention.
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1answer
460 views

Questions about Markit rates curve bootstrapping

I am reading the following two Markit documents concerning the bootstrapping of respectively the USD rates curve and the EUR, GBP, JPY, CHF, CAD, HKD, SGD, AUD and NZD rates curves. (Both versions are ...
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81 views

Writing option on one's own default

Maybe this is a weird question, but suppose that, for some reason, one would like to write an (implicit) option whose payoff is indexed on the writer's CDS spread. I would like to know what would be a ...
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139 views

Credit quotations with which ISDA models?

I understand that single name liquid CDSs are (roughly speaking) quoted through either upfront+coupon, spread or price, and that for the pricing, the ISDA standard model is used : among other ...
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8k views

How to converting CDS Upfront Fee into Traded Spread?

If I know all the economics of a CDS trade included the Upfront Settlement Fee from the ISDA CDS Model, how can I convert that amount back to Traded Spead? Can some help explain the process?
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1answer
1k views

Reliability of CDS indices?

Looking at a time series two North American CDX indexes, one high yield and one investment grade, shows somewhat unexpected trends. CDX.NA.IG seems to be much higher and more volatile than CDX.NA.HY,...
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412 views

Which interest rate to choose to estimate a CDS default probability?

As you know, with basic assumptions default probability could be calculated by $$\text{CDS Spread} = p \cdot \frac{1-RR}{1+r}$$ Does that make sense to use 5 Year CDS Spread with 5 year Generic ...
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2answers
1k views

dataset on Credit Default Swap [duplicate]

I would like to have the CDS for the main countries. Do you know where I could find these data free to use? Thanks a lot