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Valuation of credit default swaps

Posted 10 years ago

Credit default swaps - probably better known in the financial community as CDS - are useful derivative contracts that help controlling credit exposures to a given reference entity and therefore play important role in the counterparty and credit risk management. Whilst primary use of CDS concentrates on standardised contracts, there are other interesting variations that provide control on non-static future exposures. In this instalment we discuss the valuation of this popular derivative product and show interesting variation of this theme in the non-standard setting.

CDS and hazard rates

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POSTED BY: Igor Hlivka
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Hello Igor, thanks a lot for the notebook! I'm actually planning to replicate all your postings to improve my knowledge of finance and Mathematica so I may contact you again with further questions. Regards, Ruben

Certainly, Ruben. Feel free to raise any question.... Kind regards Igor " Always just one mail away....."

POSTED BY: Igor Hlivka

Hello Ruben

I have enclosed the Mathematica notebook that explains the entire CDS calculation logic and shows the whole part related to the CCDS calculation. Please note that the dynamic flow on the severity leg is 'random', so it will change every time you hit Enter. This was to simulate dynamic nature of future flows. If you want stable input, enter SeedRandom function with the specific seed number before the function call.

Hope this will help in your query. If you have any additional question, I will be glad to assist.

Kind regards Igor

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POSTED BY: Igor Hlivka

Dear Igor, thanks a lot for the post. I've been trying to replicate your example using Mathematica but I'm having difficulties with the CCDS function. Would it be possible for you to provide additional information regarding the NPV profile data and the definition of the nomval function inside the slegccds function? Many thanks in advance, Ruben

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