Questions tagged [credit-derivatives]

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1answer
34 views

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) ...
2
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1answer
62 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 ...
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1answer
72 views

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 ...
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1answer
155 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 ...
1
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1answer
108 views

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
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1answer
323 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 ...
2
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0answers
49 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
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0answers
36 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 ...
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1answer
164 views

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, ...
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0answers
331 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, ...
1
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1answer
57 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?
4
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2answers
384 views

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 ...
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2answers
48 views

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 ...
-1
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1answer
97 views

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?
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1answer
214 views

<Credit Default Swap> Auction Recovery vs Fixed Recovery

What is the Difference between Auction Recovery CDS and Fixed Recovery CDS?
4
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1answer
411 views

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?
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0answers
163 views

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 ...
2
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0answers
80 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 ...
2
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1answer
4k 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
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1answer
119 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 ...
2
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1answer
649 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 ...
2
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2answers
57 views

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 ...
6
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2answers
936 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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3answers
3k 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
2k views

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
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2answers
2k views

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 ...
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2answers
216 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
2k views

Fixed coupon for CDS index

Here is the fixed coupon for CDS index in John Hull's book Options, Futures and Other Derivatives 9th ...
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2answers
813 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). ...
2
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1answer
517 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
92 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 ...
4
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1answer
7k 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.
2
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0answers
213 views

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 ...
6
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2answers
14k views

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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0answers
56 views

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) ...
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0answers
51 views

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 ...
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4answers
19k views

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 ...
1
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0answers
112 views

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 ...