# Tag Info

### How to compute the implied probability of default from a CDS spread?

I believe the answer can be further improved for all those being directed here by google after 3 years. A common way to model the default probability is by the hazard rate. As @Bob correctly mentions, ...
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### Reliability of CDS indices?

The indices have different quoting conventions. The way that a CDS index is traded is that you pay a fixed amount per year for protection in case of default (100 bps for IG, 500 bps for HY) and ...
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### Why do CDS Spreads differ by currency?

Firstly, have a look at this TwoSigma article: What Sovereign CDS Spreads Potentially Tell Us about Currency Risk To elaborate, if a country in the Euro Zone (like Italy) defaults, then this will ...
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### Recovery Rates in CDS valuation

Apparently, you refer to this passage from Prof John C. Hull (11th edition, 2021): It's confusing because Hull is referring to the market conventions before the "Big Bang". This is no ...
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### Where to get price data on Credit Default Swaps?

Better than Markit, you can have a look at https://www.datagrapple.com/ (subscription is free). About 1000 CDS are covered. Daily end-of-day prices (mid of a best bid/offer order book) from Jan 2006 ...
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### Why was CDS-bond basis close to zero before the financial crisis?

You and the paper are both correct. Funding was not free before the GFC, but the funding cost of both positions then was almost equal, generating almost-zero basis. Since then, holding physical bonds ...
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### What does "rolling" for a CDS contract mean?

For CDS indices, a new series is created every 6 months (3/20 and 9/20). With each new series, the basket of reference entities will generally change, with some names replaced by others. Rolling is ...
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### Formula to price a CDS Index Option?

You will see a discussion of how to do this in O'Kane's book in section 11.7. It shows that you can adjust the forward CDS index spread in such a way that you can then use Black's swaption pricing ...
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### Formula to price a CDS Index Option?

A good reference for the valuation of a CDS index option is the paper by Massimo Morini and Damiano Brigo, where they discussed the Bloomberg CDS index option valuation, which is based on Black's ...
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### Do CDS have interest rate exposure?

So as per my comments, the answer is yes. It's all about which leg is dominant, the loss payment, or the premium, if any. If you're short risk (bought protection) vs paying premium, then if the ...
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The CDS spread costs you 11.7% in order to ensure that the holder gets the remaining 60% of principal and interest in return. In the end, the payment you are getting in default is 60%-11.7% = 48.3%. ...
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### Properties of an iTraxx index

The European iTraxx indices trade 3, 5, 7 and 10-year maturities, and a new series is determined on the basis of liquidity every six months. For the total return index : The regular roll process from ...
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### "Where is my money": CDS Sensitivities, Spreads and PnL Calculations

You would need to provide more details for an accurate PnL attribution. However, here are some additional points to consider that might help. When you sold protection, you effectively became long ...
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### Hedging a CDS sold

If it is a single name CDS, the transaction leaves the bank short the credit spread of that bond vs a risk-free bond in the same currency. To go long the spread, the bank would i) buy the same CDS ...
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### CDS currency and reference obligation currency

A reference entity (the debtor that might have a credit event) does not have any currency denomination. A reference entity might have many outstanding debt instruments. Each instrument is denominated ...
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### CDS Option pricing in quantlib python

First, the error is because you should input the cds_vol as a quote. So instead of cds_col use ...
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### Debt seniority and probability of default

A CDS contract has a "reference entity" (obligor, bond issuer) and a "reference obligation" (the specific bond that needs to default, rather than a tier). Read https://www.isda.org/...
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### Credit Valuation adjustment (CVA) Hedges

To continue from uness' answer (edit: just seen the OP was very old, but will leave here anyway!) . The greeks will be every element of market risk to which the the CVA is sensitive. Writing in words ...
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### Credit Valuation adjustment (CVA) Hedges

CVA is a price. Just like any price, you compute its sensitivities (greeks) and then use financial products to bring them as close to zero as possible. It's not possible to derive a hedging strategy ...
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### What is the Difference Between a Credit Default Swap and a Bet

The basic idea behind the CDS to provide protection from credit risk to the buyers of corporate bond. They are supposed to be like a insurance product where he buyer of the CDS pay the premium to the ...
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Regarding the terminology, there is no relation between CDS spread and bid/ask spread. The term spread in this sense refers to the related difference (spread) of the effective (credit risky) interest ...
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### Return on a CDS portfolio

There are a number of ways you might consider it: 1) As an investor (speculator) you may be required to post collateral that permits the holding of the position. What is your return relative to the ...
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### Reason for stale sovereign CDS spreads (e.g. Greece)

Reuters is not a good source of data. (Maybe try Markit?) Greece had a "credit event" in 2012. An ISDA auction determined how much a defaulted bond was worth, all CDSs were cash-settled using the ...
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### CDS ISDA model/Bloomberg

The isda-engine.py example in the QuantLib-SWIG distribution reproduces Markit prices within fractions of cents.
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### Expected currency depreciation given sovereign default

I have actually looked into this a lot and I don't have a full answer. You can (sort of) see what the market participants think by looking at the consensus "quanto factors" published monthly by IHS ...
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### CDS volatility: daily return calculated by simple substraction (Pt - Pt-1)?

If I understand correctly, you are looking for the volatility of the daily change in the mark to market of a credit default swap. You are given a daily series of CDS spreads (market standard quotes, ...
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### Reproduce CDS Index Default Probability via Tranche [0,100] Probability

It is actually that you forgot your $1 - R$ in formula (2) :) The index survival curve is defined similarly to the tranche's : \$Q\left(t\right) = 1 - \mathbb{E} \left[L\left(t\right)\right] = 1 - \...
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### Can I calculate the CVA or DVA over a sovereign portfolio?

CVA stands for Credit Valuation Adjustment and should be applied to derivatives and not bond portfolios. The reason is that unlike derivatives, a bond has the counterparty credit quality implicitly ...
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### Objective probability of default from CDS spread

(Bloomberg and Reuters News are fond is reporting that some name is trading at some such CDS spread, "which implies N% probability of default". They neglect to mention what recovery ...
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