Additional tools for working with credit default swaps and are available in Financial Instruments Toolbox™. For more information, see Price Credit Derivative Instruments (Financial Instruments Toolbox).
In a typical workflow, pricing a new CDS contract
involves first estimating a default probability term structure using
The breakeven, or running, spread is the premium a protection buyer must pay, with no upfront payments involved, to receive protection for credit events.
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.
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.
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.
A credit default swap (CDS) is a contract that protects against losses resulting from credit defaults.