Credit Default Swap (CDS)
A credit default swap (CDS) is a contract that protects against losses resulting from credit defaults. The transaction involves two parties, the protection buyer and the protection seller, and also a reference entity, usually a bond. The protection buyer pays a stream of premiums to the protection seller, who in exchange offers to compensate the buyer for the loss in the bond’s value if a credit event occurs. The stream of premiums is called the premium leg, and the compensation when a credit event occurs is called the protection leg. Credit events usually include situations in which the bond issuer goes bankrupt, misses coupon payments, or enters a restructuring process. Financial Instruments Toolbox™ software supports the following objects and functions:
Compute default probability parameters from CDS market quotes.
Compute breakeven spreads for the CDS contracts.
Compute the price for the CDS contracts.
- First-to-Default Swaps (Financial Instruments Toolbox)
- Credit Default Swap Option (Financial Instruments Toolbox)
- Counterparty Credit Risk and CVA (Financial Instruments Toolbox)
- Bootstrapping a Default Probability Curve from Credit Default Swaps (Financial Instruments Toolbox)
- Get Started with Workflows Using Object-Based Framework for Pricing Financial Instruments (Financial Instruments Toolbox)