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Just to recap. This means that Eurodollar contract will be a cash settlement on the settlement date by paying upfront (beg of the loan) rather than at the end of the 3-month loan like in an actual loan. Am I correct?
We’re looking at the spread $\Delta$ for CDS basis trade, right? Whether Libor or Risk free rate, why don’t we apply one or another across all the variables in the equation?
@noob2 I found on this paper “Trading the CDS basis by Moorad Choudhry”. But on his paper, he uses ASW spread instead of Z-spread. But it’s got me thinking tht CDS pricing model still uses a risk free rate anyway.
Thank you for the clarification. One more question here, in the real world practice, do they assume the default occurring in midway like the formula suggests?
When the Fed is engaging in a Reverse repo to inject liquidity, is this from the Fed’s perspective right? If so, is this transaction using a reverse repo rate? Thanks
