Credit Default Swaps
A credit default swap is a particular type of swap designed to transfer the credit exposure of fixed income products between two or more parties. In a credit default swap, the buyer of the swap makes payments to the swap’s seller up until the maturity date of a contract. In return, the seller agrees that, in the event that the debt issuer defaults or experiences another credit event, the seller will pay the buyer the security’s premium as well all interest payments that would have been paid between that time and the security’s maturity date. A credit default swap is, in effect, insurance against non-payment. Tools for analyzing credit default swaps are available in Financial Toolbox™.
Functions
cdsbootstrap | Bootstrap default probability curve from credit default swap market quotes |
cdsprice | Determine price for credit default swap |
cdsspread | Determine spread of credit default swap |
cdsrpv01 | Compute risky present value of a basis point for credit default swap |
Topics
- Bootstrapping a Default Probability Curve
This example shows how to price a new CDS contract by first estimating a default probability term structure using
cdsbootstrap. - Finding Breakeven Spread for New CDS Contract
This example shows how to compute the breakeven, or running, spread.
- Valuing an Existing CDS Contract
This example shows how to compute the current value, or mark-to-market, of an existing CDS contract.
- Converting from Running to Upfront
This example shows how to convert the market quotes to upfront quotes.
- 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
This example shows how to price first-to-default (FTD) swaps under the homogeneous loss assumption.
- Credit Default Swap (CDS)
A credit default swap (CDS) is a contract that protects against losses resulting from credit defaults.
