Valuation models

CDS indices

Upfront points and price from the quoted spread at the standard coupon, on the index factor's outstanding notional, with CS01, default probabilities, and the intrinsic spread and basis against constituent spreads.

Inputs

Results

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Methodology

Conventions

  • Quoted as the market does: a flat hazard curve at the index spread, the standard coupon on the outstanding notional.
  • Intrinsic spread is the RPV01-weighted average of the constituents' spreads.

References

  • O'Kane, Modelling Single-name and Multi-name Credit Derivatives, ch. 10

Formulas

Upfront
U = N f (PV(protection) − c · RPV01)
Price
P = 100 (1 − U / (N f))