Derivatives

Credit Spread

August 14, 2020
Derivatives

CDS Basis

August 14, 2020

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The spread that makes the value of a credit default swap (CDS) with the same maturity equal to zero at the present. This spread is the coupon (interest payment) that makes the two legs of the swap (premium and protection) equal.

In other words, the CDS par spread makes the discounted present value of the periodic payments equal to the expected present value of the settlement amount in case a credit event occurs.

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