Valuing an Existing CDS Contract
This example shows how to compute the current value, or mark-to-market, of an existing CDS contract. The current value is the amount of money the contract holder would receive (if positive) or pay (if negative) to unwind the contract.
The upfront of the contract is the current value expressed as a fraction of the notional amount of the contract, and it is commonly used to quote market values.
The value of existing CDS contracts is obtained with cdsprice
. By default, cdsprice
treats contracts as long positions. Whether a contract position is long or short is determined from a protection standpoint, that is, long means that protection was bought, and short means protection was sold. In the following code, an existing CDS contract pays a premium that is lower than current market conditions. The price is positive, as expected, since it would be more costly to buy the same type of protection today.
Settle = '17-Jul-2009'; % Valuation date for the CDS MarketDates = datenum({'20-Sep-10','20-Sep-11','20-Sep-12','20-Sep-14', ... '20-Sep-16'}); MarketSpreads = [140 175 210 265 310]'; MarketData = [MarketDates MarketSpreads]; ZeroDates = datenum({'17-Jan-10','17-Jul-10','17-Jul-11','17-Jul-12', ... '17-Jul-13','17-Jul-14'}); ZeroRates = [1.35 1.43 1.9 2.47 2.936 3.311]'/100; ZeroData = [ZeroDates ZeroRates]; [ProbData,HazData] = cdsbootstrap(ZeroData,MarketData,Settle); Maturity2 = '20-Sep-2012'; Spread2 = 196; [Price,AccPrem,PaymentDates,PaymentTimes,PaymentCF] = cdsprice(ZeroData, ... ProbData,Settle,Maturity2,Spread2); fprintf('Dirty Price: %8.2f\n',Price+AccPrem);
Dirty Price: 56872.94
fprintf('Accrued Premium: %8.2f\n',AccPrem);
Accrued Premium: 15244.44
fprintf('Clean Price: %8.2f\n',Price);
Clean Price: 41628.50
fprintf('\nPayment Schedule:\n\n');
Payment Schedule:
fprintf('Date \t\t Time Frac \t Amount\n');
Date Time Frac Amount
for k = 1:length(PaymentDates) fprintf('%s \t %5.4f \t %8.2f\n',datestr(PaymentDates(k)), ... PaymentTimes(k),PaymentCF(k)); end
20-Sep-2009 0.1806 35388.89 20-Dec-2009 0.2528 49544.44 20-Mar-2010 0.2500 49000.00 20-Jun-2010 0.2556 50088.89 20-Sep-2010 0.2556 50088.89 20-Dec-2010 0.2528 49544.44 20-Mar-2011 0.2500 49000.00 20-Jun-2011 0.2556 50088.89 20-Sep-2011 0.2556 50088.89 20-Dec-2011 0.2528 49544.44 20-Mar-2012 0.2528 49544.44 20-Jun-2012 0.2556 50088.89 20-Sep-2012 0.2556 50088.89
Also, you can use cdsprice
to value a portfolio of CDS contracts. In the following code, a simple hedged position with two vanilla CDS contracts, one long, one short, with slightly different spreads is priced in a single call and the value of the portfolio is the sum of the returned prices.
[Price2,AccPrem2] = cdsprice(ZeroData,ProbData,Settle, ... repmat(datenum(Maturity2),2,1),[Spread2;Spread2+3], ... 'Notional',[1e7; -1e7]); fprintf('Contract \t Dirty Price \t Acc Premium \t Clean Price\n');
Contract Dirty Price Acc Premium Clean Price
fprintf(' Long \t $ %9.2f \t $ %9.2f \t $ %9.2f \t\n', ... Price2(1)+AccPrem2(1), AccPrem2(1), Price2(1));
Long $ 56872.94 $ 15244.44 $ 41628.50
fprintf(' Short \t $ %8.2f \t $ %8.2f \t $ %8.2f \t\n', ... Price2(2)+AccPrem2(2), AccPrem2(2), Price2(2));
Short $ -48185.88 $ -15477.78 $ -32708.11
fprintf('Mark-to-market of hedged position: $ %8.2f\n',sum(Price2)+sum(AccPrem2));
Mark-to-market of hedged position: $ 8687.06
See Also
cdsbootstrap
| cdsprice
| cdsspread
| cdsrpv01
Topics
- First-to-Default Swaps (Financial Instruments Toolbox)
- Credit Default Swap Option (Financial Instruments Toolbox)
- Counterparty Credit Risk and CVA (Financial Instruments Toolbox)