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Questions tagged [credit-derivatives]

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40 views

<Credit Default Swap> Auction Recovery vs Fixed Recovery

What is the Difference between Auction Recovery CDS and Fixed Recovery CDS?
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1answer
86 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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1answer
136 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
33 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 ...
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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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2answers
446 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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0answers
40 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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0answers
209 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
59 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 ...
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2answers
264 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
43 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 ...
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3answers
1k 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
856 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{...
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2answers
870 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 ...
2
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1answer
337 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
1k 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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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
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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0answers
165 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 ...
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2answers
8k 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 ...
3
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3answers
13k 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 ...
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0answers
51 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
48 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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0answers
99 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 ...