Questions tagged [credit-derivatives]
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46
questions
2
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1
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the difference between CS01 and RS 1%
Please tell me the difference between CS01 and RST 1% (Relative spreads tightening by 1%) and how these two are used to monitor the credit flow traded product's exposures. Why would you use the spread ...
- 21
0
votes
1
answer
78
views
Equity and Credit Portfolio Return
This might sound like a trivial question but would appreciate the answer.
How would you calculate the return of the portfolio consisting of only equity and credit instruments? For example, consider ...
- 3
0
votes
1
answer
100
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In a credit default swap, does the default event have to involve the reference obligation (ie a specific ISIN)
If a company has a default in one of its bonds, but not the reference obligation referenced in the CDS, does that constitute a default?
Also, if there is settlement via physical delivery, does the ref ...
- 1
0
votes
0
answers
108
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Is there a mapping that ties Credit Events to standard CDS documentation clauses?
I'm trying to map the standard CDS documentation clauses that we receive from Markit:
CR/CR14
MR/MR14
MM/MM14
XR/XR14
to the credit event types that we are seeing:
BANKRUPTCY
FAILURE TO PAY
...
- 96
0
votes
1
answer
68
views
Variance covariance matrix for a portfolio of credit derivatives
If the var-covar matrix for equities takes the return on equity prices, what should the var-covar matrix for credit derivatives (like a CDS) take?
Should it be the probability of default, since that ...
- 61
5
votes
1
answer
163
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Clarification on how synthetic CDOs work
According to my understanding, synthetic CDOs are essentially credit default swaps (CDS) for a bunch of loans, stored in a special purpose vehicle (SPV). Here, the investor (the one who buys the ...
- 63
1
vote
0
answers
134
views
CDS Option Pricing (Missing Index Factor)
I've read the OpenGamma paper https://quant.opengamma.io/CDS-Options-OpenGamma.pdf on CDS Options, and noticed a small discrepancy. So I wanted to double-check my understanding.
In Section 6.4 the ...
- 1,192
1
vote
0
answers
112
views
Graph of price of CDS against par spread
I'm new to credit and I'm trying to wrap my head around the following idea. I understand that the par spread $s$ is the value of the fixed coupon payment at which the fixed and floating legs are equal ...
- 175
0
votes
1
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68
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Is the payoff of an $N^\text{th}$ to default basket CDS equal to the credit loss on only the $N^\text{th}$ default, or all prior defaults too?
I have some notes that state that the higher the value of $N$ in an $N^\text{th}$ to default basket credit default swap, the lower the credit risk exposure (to the party selling the protection) ...
- 175
2
votes
1
answer
92
views
First-to-Default Credit Swap: what is the payoff when a joint default occurs
I keep reading about the impact of default correlation on the pricing of a First-to-Default (FtD) credit default swap (CDS). What no one explains is how a joint default event impacts the actual payoff ...
- 123
0
votes
1
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567
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Does credit default swaps have interest rate duration and credit duration?
Will a CDS have interest rate duration and credit duration?
It does seem likely that the value of the CDS would depend on the underlying interest rate, or the spread. But when I try to Google this I ...
- 125
0
votes
1
answer
909
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 ...
- 21
1
vote
1
answer
214
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Implied funding/repo rates from Credit Default Swaps
One of the differences between a CDS and a bond is the funded vs unfounded nature of the two. Given that is the case, at least some portion of the CDS-Bond basis should be driven by an implied repo/...
-1
votes
1
answer
654
views
How can I learn stochastic process & stochastic calculus in two weeks? [closed]
I am going for an interview for a quant job. The interview will focus on my mathematical knowledge about stochastic process & stochastic calculus, and I believe I will definitely be asked to solve ...
- 11
2
votes
0
answers
91
views
Cost of Volga & Vanna in Credit Options?
What are the commonly used methods to compare the cost of volga/vanna in credit index options across time and strikes? In practice, is the Vanna-Volga exposure technique used in credit, or are there ...
3
votes
0
answers
43
views
Replication of "recovery bond"
I just started learning about credit products.
Let $B_t^T$ be the price of a risk free zero coupon bond at time $t$. Similarly, let $C_t^T$ be the price of a zero coupon risky bond from some fixed ...
- 495
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1
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350
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Understanding Asset Swap Spread Example
Here is an overview of the asset swap spread I found online: https://www.deriscope.com/docs/AssetSwaps_LehmanBrothers_2000.pdf
I can't seem to make sense of the numbers in this example:
Specifically, ...
- 479
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vote
0
answers
417
views
Reduced form of credit model
The price for a simple credit bond, where a credit event is modeled as the first jump of a Poisson process $N$, with stochastic hazard rate $\lambda$, is given by
$$P_t = P(t, \lambda, N)$$
such that,
...
- 343
1
vote
1
answer
83
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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4
votes
2
answers
691
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Value (price) of defaultable zero coupon bond with credit risk involved
I'm trying to derivate the Value (price) of defaultable zero coupon bond, but there some steps (math) in between I can't figure out.
From the default process modelling, we have:
$$P(t ≤ \tau < t+dt ...
- 167
1
vote
2
answers
77
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CDS time series construction
It has been my understanding that CDS and CDS indices are traded in the OTC market. Surely, this would mean that if an investor decides to go long a CDS contract, the spread that the investor will be ...
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-1
votes
1
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214
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Credit default swap price quote conversion
How to convert cds prices quoted in PTS or PRICE to BPS? Eg. If CDS price quoted as 37 PTS then what is the equivalent in BPS and how to calculate that?
1
vote
1
answer
371
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<Credit Default Swap> Auction Recovery vs Fixed Recovery
What is the Difference between Auction Recovery CDS and Fixed Recovery CDS?
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1
answer
573
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Difference between FRA and a zero coupon swap
Wanted to know the difference between an FRA and zero coupon swap with both legs having payment at maturity. If the zero coupon swap is forward starting, will it be equivalent to an FRA?
- 113
2
votes
0
answers
325
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Difference in utility of cap/floor and FRA
What is the difference in utility for cap/floor and FRA? To me their function looks very similar. Are they used for different objectives. One thing I know in difference is that the pay off for cap is ...
- 113
2
votes
0
answers
125
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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 ...
- 105
3
votes
1
answer
8k
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 ...
- 1,192
1
vote
1
answer
177
views
Basic CDS terminology
new to CDS. Few basic questions on terminology and conventions:
If I look at a Sovereign 5-year Chinese CDS then the graph shows a CDS value of 42.520. (Source). Is this 42.52 basis points?
Is it ...
- 13
2
votes
1
answer
932
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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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2
votes
2
answers
67
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Are Credit Default Swaps used by B2B Service providers or Vendors?
I understand CDS's are often employed in trading strategies between institutions - That is well publicized. What isn't as publicized is how other customers might look to use a CDS.
I work in an ...
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votes
2
answers
1k
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"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 ...
- 626
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votes
3
answers
4k
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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 ...
- 626
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vote
1
answer
3k
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Mark to Market of a CDS Contract and Risky Annuities
From JP Morgan's Trading Credit Curves 1 and we have that:
The MTM of a CDS contract is (for a sell of protection) therefore:
$$\text{MTM} = (S_{\text{Initial}}-S_{\text{Current}}).\text{Risky ...
- 2,362
2
votes
3
answers
3k
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Accrual in Default Derivation of Credit CDS Curve
In Trading Credit Curves Part I by JP Morgan we have that each point on a credit (CDS) curve represents:
$$PV(\text{Fee Leg}) = PV(\text{Contingent Leg})$$
which is
$$S_n \sum_{i=1}^{n}\Delta_i ...
- 2,362
0
votes
2
answers
263
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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 ...
0
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1
answer
3k
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Fixed coupon for CDS index
Here is the fixed coupon for CDS index in John Hull's book Options, Futures and Other Derivatives 9th ...
- 1,243
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vote
2
answers
1k
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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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2
votes
1
answer
565
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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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0
votes
1
answer
108
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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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4
votes
1
answer
8k
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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.
- 95
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votes
0
answers
242
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Derivative and Credit Risk Modelling
I am looking at acquiring a system to help with multi-instrument modelling. Across the spectrum Equity/FI/Swap/Repo/CDS/FxSwap/Forward/Future/etc for vanilla and more complex derivatives. The modeling ...
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2
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How to interpret the 'price' of a CDS?
I'm looking for an intuitive explanation of how to understand the 'price'/trade spread of a CDS.
Looking say at a current CDS on Santander, the index states that it is currently at 132. As I ...
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First coupon CDO tranche
I am interested in Tranches on Credit Indexes.
Let $T$ be the trade date, let $t_1<T<t_2$ be the accrual dates surrounding the trade date.
I would like to know which option is correct ?
A) ...
- 2,402
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0
answers
55
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Using Put Volatilities to Estimate Firm Leverage/Credit Risk
This paper by Hull, Nelken and White uses implied volatilities in structural credit risk models to back out a market-implied leverage ratio. CreditGrades has a similar implementation using equity ...
- 1,054
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4
answers
22k
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What is a Constant Maturity Swap (CMS) rate?
I have been searching in books and on the internet for a basic definition and explanation of CMS rates, but I cannot find anything clear and simple. Can you explain (maybe with an example) what a CMS ...
- 800
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0
answers
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Construction of bond portfolio represented by a CDS-Index
Markit publishes investable basket CDS indices. These are indices intended to track the credit risk of a basket of issuers (e.g. in the case of iTraxx Europe Series 24 these are 125 names) in an ...
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