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Credit Default Swaps

Bootstrap CDS probability curve, price, and determine CDS price and spread

Functions

cdsbootstrapBootstrap default probability curve from credit default swap market quotes
cdspriceDetermine price for credit default swap
cdsspreadDetermine spread of credit default swap
cdsrpv01 Compute risky present value of a basis point for credit default swap

Examples and How To

Bootstrapping a Default Probability Curve

In a typical workflow, pricing a new CDS contract involves first estimating a default probability term structure using cdsbootstrap.

Finding Breakeven Spread for New CDS Contract

The breakeven, or running, spread is the premium a protection buyer must pay, with no upfront payments involved, to receive protection for credit events.

Valuing an Existing CDS Contract

The current value, or mark-to-market, of an existing CDS contract is the amount of money the contract holder would receive or pay to unwind this contract.

Converting from Running to Upfront

A CDS market quote is given in terms of a standard spread and an upfront payment, or in terms of an equivalent running or breakeven spread, with no upfront payment.

Bootstrapping from Inverted Market Curves

These examples show bootstrapping with inverted CDS market curves, that is, market quotes with higher spreads for short-term CDS contracts.

First-to-Default Swaps (Financial Instruments Toolbox)

This example shows how to price first-to-default (FTD) swaps under the homogeneous loss assumption.

Concepts

Credit Default Swap (CDS)

A credit default swap (CDS) is a contract that protects against losses resulting from credit defaults.

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