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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1answer
64 views

Calculating RPV01 for the up-front payment of a CDS contract

I'm trying to calculate the historical P&L of a CDS trading strategy, and am struggling to come up with the up-front payment of the contract. From what I can tell, the Mark-to-Market value of a ...
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82 views

Survival probabilities starting from CDS spreads

How is that possible to get survival probabilities starting from CDS spread? Could you please provide me with a demonstration? What is more, is that true that CDS Zero type is necessary so as to get ...
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37 views

CDS option pricing in Quantlib Excel (QuantlibXL)

I am trying to price an index CDS option using QuantlibXL. Anyone aware of an existing template sheet or sample formula for creation of CDS and CDS objects? The sample template sheets provided with ...
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24 views

How to compute a zero spread for unexpected loss

I have to discount a cash flows of mezzanine and junior note of NPL's securization, so the discount curve have to include a zero spread for unexpected loss, could you suggest me a proxy to estimate ...
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77 views

Mechanics of index CDS options

I am looking at some documents regarding pricing approaches for index CDS options but none of them give much detail on the mechanics of trading the product. I have looked at the CDX UNTRANCHED ...
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42 views

Why do I get different results from different credit pricing engines in QuantLib

I am trying to use three credit pricing engines: IsdaCdsEngine, MidPointCdsEngine and IntegralCdsEngine but I am getting different NPV results from each of them. The case is like this: When I have as ...
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1answer
154 views

What's the interpretation of the probability of default implied from CDS spreads?

What's the time horizon of the probability of default implied from a CDS spread? Given CDS = PD*(1-R), if I use a 5yr CDS spread in the formula, is the implied PD the probability that that name ...
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1answer
64 views

CDS - 2015 roll convention and short CDS tenors

I am reading the ISDA document here regarding the change to roll conventions on CDS that came in at the end of 2015 and in particular section 11 relating to the short end tenors. Additionally, I am ...
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1answer
126 views

CDS - IR currency for conversion between upfront and conventional spread

I was looking at a set of CDS quotes from Markit, for USD denominated CDS, for a reference entity whose standard contract currency is EUR. The quotes were for 6 Nov 2020. Markit provide three quotes, ...
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20 views

How to initialize a UKF for term structures?

How I’can initialize a UKF (unscented kalman filter) in a CIR model for a Term structure of CDS spread? Are the sample mean and sample covariance matrix the firsts values that I’ve to set in the ...
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1answer
135 views

Objective probability of default from CDS spread

I have the risk neutral probability of default extrapolated from the market data of the CDS spreads. How can I empirically estimate the market risk price of the objective probability of default (i.e. ...
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1answer
70 views

Affine term structure for CDS

in papres such as https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2686284 (Exploring Mispricing in the Term Structure of CDS Spreads by Robert A. Jarrow, Haitao Li, Xiaoxia Ye, and May Hu) a ...
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1answer
49 views

Hazard process and affine term structure

How can I extrapolate the hazard processes and calibrate an affine term-structure model from the historical series of curves (1y, 2y, ..., 10y tenors) of the CDs spreads of different entities?
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84 views

What is zero month tenor of CDS?

there is 0 month tenor for CDS instruments, it is not clear what does it refer to Can anyone explain what zero month tenor for single-name CDS stands for?
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1answer
147 views

Hazard rate and Term structure model

About the paper of Pan and Singleton 2008 “Default and Recovery Implicit in the Term Structure of Sovereign CDS Spreads”, once the lambdas (hazard rates) for the different tenors of the term structure ...
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40 views

Robust way to calculate credit risky PV from CDS spreads

Suppose the credit risky present value of some future cash flow at time $T$ is to be calculated, and there are observable (market standard) CDS spreads on the obligor. Now, I think that one could ...
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1answer
86 views

Quanto CDS- basic question- [closed]

Just wanted to know if the quanto CDS hedge each other or not, if we assume that the quanto ratio is 100%(1). Also, is it true that in stressed condition the volatility of CDS with home ccy decreases ...
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2answers
128 views

Should I hedge this spread with a spread option or an insurance product?

My firm generates electricity from wind. Accordingly, most of my generation takes place at night, when prices are low -- and, due to congestion / oversupply, often sharply negative -- so much so that ...
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1answer
273 views

CDS Option pricing in quantlib python

I am newbie in Python and I am trying to price a CDS Option in quantlib Python. I have the below code: ...
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1answer
114 views

Can I calculate the CVA or DVA over a sovereign portfolio?

Hi I haven't understood if I can apply the CVA just for derivatives or I can estimate the PD from CDS spreads and apply these in a bonds portfolio for the CVA calculus. The CVA literature refers to "...
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54 views

Quantlib-SWIG Python: impliedHazardRate requires “warm” discountcurve

I am getting different results from the CreditDefaultSwap().impliedHazardRate() method, depending on whether the discount curve passed is "cold" i.e. just created ...
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21 views

Financial models under the defprobstrip() command in Matlab 2020a

what is the financial theoretical model below - defprobstrip() - hazardrates() - survprobs() contained in https://www.mathworks.com/help/fininst/examples/...
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63 views

Currency of CDS and adjustment of interest rated for country risk

I have question concered currency of the CDS spreads. In the analysis I am conducting, I perform adjustment of interest rates for country risk (CDS could be a reference to reflect a country risk). ...
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1answer
25 views

Currency-denomination for the index in an event study

Suppose I want to perform an event study on corporate CDS spreads using the market model. All my CDS are US dollar-denominated, whereas the market index is euro-denominated. Is this strategy ...
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1answer
100 views

CDS currency and reference obligation currency

I have been reading a lot of posts on this topic, but still cannot find a definitive answer though. If there is a CDS on a corporate reference entity in a currency denomination, does that imply there ...
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1answer
42 views

n-th to default swap with five reference names

I would like to price a n-th to default swap on a basket of 5 assets or reference names. I started to code in R and I put the routine hereby. my doubt is how to use the m = {m1,m2,m3,m4,m5} series ...
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1answer
101 views

MATLAB - Probability Default with CDS Bootstrapping

I have not understood which "zerorati" I must use for the bootstrap of the PD from the curve of the CDS spreads. Can you help me please? I consulted O'Kane (2008) and Brigo and Mercurio (2006), but I'...
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57 views

CDS basis trade using Risk free rate

The CDS spread pricing model uses “Risk free rate” to discount the PV and the Z-spread also uses “Risk free rate” to compute the spread. But the given example uses repo rate that comparing to Libor: ...
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2answers
75 views

The factor of 1/2 used in CDS spread derivation

Looking at the CDS spread formula, most of the variables are intuitive but only “2” in the equation that I’m stuck with. $$S = \frac{(1-R)\sum D(t_i )(q_{i-1} - q_i)}{\sum D(t_i)q(t_i)d_i + D(t_i)(...
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78 views

Why Quantlib CreditDefaultSwap::ISDA fail on roll dates: 1st iteration: failed at 1st alive instrument, pillar

I am experimenting with Quantlib CDS engine, I create a piecwise hzard rate based on CDSHelpers and try to compute default probability with it and then some specific upfront. I managed to match BBG ...
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1answer
690 views

Implied probability of default (CDS spread)

After some googling, I have made some progress but not enough to come to a conclusion, so here we go: Given that the CDS spread of a counterparty is 100bp (flat across time) and that the risk free ...
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29 views

How is the Jump-to-default for CDS modeled in clearing houses?

I am trying to understand how the margin is calculated where protection is sold and more specifically what type of recovery rates are assumed. Any insights would be much appreciated.
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1answer
198 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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2answers
180 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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2answers
175 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
417 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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73 views

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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1answer
3k 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
692 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
1k 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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2answers
2k 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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0answers
62 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
1k 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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3answers
890 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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1answer
135 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
540 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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165 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
788 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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2answers
134 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
1k 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 ...