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Most, but far from all, companies maintain a relatively steady debt load. When a bond matures, they fund its principal payout with a new bond. Sometimes companies do take on more and more debt, meaning that CDS protection sold during earlier times of small debt loads becomes more valuable (and underpriced, from the point of view of the protection seller). ...

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The original Merton model takes a simplified view of the debt structure in assuming the total value of outstanding debt (or some portion thereof) $D$ matures at a specified time $T$. Shareholders are long a European call option on the firm value struck at the face value of debt and bondholders are long a risk-free zero coupon bond and short a European put ...

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In general any OTC trade (in your case total return swap) between two parties (i.e. buyer - Party A and dealer - Party B) shall and would be driven off a legal document which sets out transaction details. In most of the cases such legal document would be ISDA Master agreement and it's annexes (if any). There should be a notion/definition of a "Calculation ...

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A TRS is very rarely between Hedge fund 1 and Hedge fund 2 (how would they find each other?). Much more likely that it is between Hedge Fund 1 and a Dealer. In the latter case, one of the counterparties must act as Calculation Agent, and it is almost always the Dealer. The Calculation Agent has the responsibility of marking to market the asset, for the ...

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I am not a lawyer. I do have some old $n$th to default term sheets just lying around. Reading them, I interpret their language to work very similarly to the cheapest-to-delver language in single-name CDS. To emphasize again this is just my understanding of some complex legalese and I could well be missing something. Recall that with the single-name CDS, ...

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I recall that in 2002, when Lula won the Brazilian presidential election, and was later inaugurated, most of the market participants assumed that Brazil would default on its sovereign debt, as Argentina did in December 2001. (I took the opposite view and did well for myself.) We used to quote CDS as par spreads back then - was was way over 6,000 bps (today ...

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