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
82 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
61 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
61 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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28 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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18 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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30 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
24 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
58 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
41 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
49 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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Implied number of defaults in an Index CDS

Is there a standard way to imply the number of index defaults from index CDS pricing? For example, for the iTraxx XOVER index is it possible to infer the expected number of defaults in the index for 1 ...
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43 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
59 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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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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29 views

Coherent and convex risk measure for a ZCB portfolio

I have the composition of one ZCB portfolio at the time $\ {t_1,...,t_n}$. I have to estimate the volatility of the single ZCB following (Bruder et al., p.6, 2011) https://mpra.ub.uni-muenchen.de/...
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1answer
265 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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27 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
188 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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18 views

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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34 views

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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2answers
118 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
128 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
246 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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1answer
2k 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
520 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 ...
2
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1answer
975 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
1k 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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56 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
977 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
561 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
112 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 ...
2
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1answer
304 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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128 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
567 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
107 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
900 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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2answers
173 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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2answers
297 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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3answers
2k views

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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1answer
668 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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1answer
912 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
125 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
347 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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28 views

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
171 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
171 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
543 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
118 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 ...