Valuation models

Bonds on a credit curve

Hazard rates bootstrapped from CDS spreads by maturity, coupons weighted by survival plus recovery on default, with the equivalent z-spread, expected loss, CS01 and PV01.

Inputs

CurrencyFace amountMaturityyCoupon%Coupon frequencyDiscount curveDiscount curve: flat rate% ccIssuer credit curve1Y CDS spreadbp3Y CDS spreadbp5Y CDS spreadbp7Y CDS spreadbp10Y CDS spreadbpRecovery rate%

Results

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Methodology

Conventions

Coupons and principal are paid only on survival; recovery of face on default.
Hazard rates are bootstrapped from the issuer's CDS spreads; the z-spread giving the same price is shown.

References

O'Kane, Modelling Single-name and Multi-name Credit Derivatives, ch. 4

Formulas

Price: P = Σ cᵢ D(tᵢ) Q(tᵢ) + R ∫ D(t) (−dQ(t))