100% satisfaction guarantee Immediately available after payment Both online and in PDF No strings attached
logo-home
Previously searched by you
Previously searched by you
logo
CDS Question and answers 100% correct $12.49   Add to cart
Quickly navigate to
Preview
  2.  
  3. CD
  4.  
  5. CD

Exam (elaborations)

CDS Question and answers 100% correct

 0 view  0 purchase
  • Course
  • CD
  • Institution
  • CD

CDS Question and answers 100% correct CDS CDS - correct answer isolate credit risk of a FI security - two parties: protection buyer, protection seller (usually a dealer) Reference obligation - debt instrument issued by the reference entity Protection buyer buys credit protection fro...

[Show more]

Preview 2 out of 8  pages

Document information

  • November 15, 2024
  • 8
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers

Subjects

  • cds
  • cds question and answers 100 correct

Written for

  • CD
  • CD

Seller

avatar-seller
flyhigher329

Reviews received

Content preview

CDS
CDS - correct answer ✔isolate credit risk of a FI security


- two parties: protection buyer, protection seller (usually a dealer)


Reference obligation - debt instrument issued by the reference entity


Protection buyer buys credit protection from the protection seller and pays
periodic CDS spread pmts (fixed at inception) for the coverage....and then
dealer assumes credit risk, and would make default payment if default occurs
during swap


Obligations and risks of different parties - correct answer ✔Protection buyer:
"short credit risk"...and is obligated to make CDS spread payments


Protection seller: "long credit risk" and is obligated to make a payment if a
credit event occurs


A CDS on a specific borrower is called a "single-name CDS" (ex: bonds
issued by 1 borrower, NOT a portfolio)
==> Payoff on single-name CDS is based on the "cheapest-to-deliver" CTD
obligation with the same seniority


When default occurs, CDS ceases to exist


Index CDS - correct answer ✔A CDS on an equally weighted combo of
borrowers is called an INDEX CDS

, Credit correlation is important factor in pricing index CDS


Index (equally weighted!):
- CDX-IG (NA) - # of entitites = 125
- CDX - HY (NA) = 100
- iTraxx Main - Eur, Asia, Austr -IG = 100
- iTraxx Crossover - Eur, Asisa, Austr HY = 50


so if we have $100M on CDX HY - so if one constituents defaults out of
CDXHY, then underlying notional principal attributable to this defaulter is
$1M... ONCE DEFAULT, notional P is adjusted DOWNWARD... so $99M (bc
now 99 entities)


CDS Spreads - correct answer ✔Standardization in CDS market makes CDS
coupon (premium payment) IS NOT EQUAL TO CDS spread


- if spread higher than rate, then buyer is advantaged


ex: 1% coupon IG, 5% coupon HY...not all IG are going to have credit spread
for ex of 1% (standardization forces buyer to pay standard % tho...)


Hence, an upfront payment is made by one of the counterparties to the CDS
(THE ONE THAT IS ADVANTAGED); this is called the upfront premium


Credit Events - that would trigger a payoff from protection seler


- bankruptcy

The benefits of buying summaries with Stuvia:

Guaranteed quality through customer reviews

Guaranteed quality through customer reviews

Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.

Quick and easy check-out

Quick and easy check-out

You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.

Focus on what matters

Focus on what matters

Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!

Frequently asked questions

What do I get when I buy this document?

You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.

Satisfaction guarantee: how does it work?

Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.

Who am I buying these notes from?

Stuvia is a marketplace, so you are not buying this document from us, but from seller flyhigher329. Stuvia facilitates payment to the seller.

Will I be stuck with a subscription?

No, you only buy these notes for $12.49. You're not tied to anything after your purchase.

Can Stuvia be trusted?

4.6 stars on Google & Trustpilot (+1000 reviews)

79223 documents were sold in the last 30 days

Founded in 2010, the go-to place to buy study notes for 14 years now

Start selling
$12.49
  • (0)
  Add to cart