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Re: CDS upfront

Posted by japari on Jun 04, 2008; 9:03am
URL: http://quantlib.414.s1.nabble.com/CDS-upfront-tp11924p11931.html

True for the accuracy question but the pricer integrates over the coupon periods
in the schedule. If we have no schedule we want to do the same from start to
end. The upfront should be easier to incorporate here than to the midpoint; we
can do a test on the schedule, if none choose the integration dates and set a
period.
pp

Quoting Simon Ibbotson <[hidden email]>:

> I think this has already been done in
> ql\pricingengines\credit\integralcdsengine where you can choose an
> integration periodicity.
>
> Simon
>
> PS You have to look at the files - I don't think they've been added to the
> VC++ project file.
>
>
>
> On 6/4/08, [hidden email] <[hidden email]> wrote:
> >
> > This is what happens with junior tranches. It makes sense when they are
> > very
> > risky. Cant we add the upfront as a member to the cds? and then
> > price/calibrate:
> >
> > CL = upfront * DF (settlement) + \sum [c_i df_i psurv_i + accrued_i] = DL
> >
> > Of course if there r no coupons, and this is your point I guess, we are
> > left
> > with arbitrarily timed integration points in the default leg. We only have
> > the
> > CDS tenors and will not interpolate for coupon dates (no coupons). (
> > Curiously
> > it means the CL is independent of the interpolator we choose) But then the
> > tenors can jump 5Y and that will make the DL integration innacurate.
> >
> > A quick one is to have a zero spread schedule with coupons every 3M or 1M
> > for
> > the DL computation (and incompatible with paysAtDefaultTime since these are
> > fictitious points), but thats just a dirty trick. Since we construct the
> > schedule outside the CDS I can not see a lib user setting schedules for a
> > zero
> > spread....... Besides, it will burden the CL calculation with zero
> > products...
> >
> > what if coupon schedule = void THEN create 3M/1M empty schedule? Not
> > elegant,
> > hum?
> >
> > This question rises also the one of how accurate is to calculate the DL
> > with the
> > coupons schedule, it might contain periods which are too long for accuracy.
> >
> > pp
> >
> > Quoting Simon Ibbotson <[hidden email]>:
> >
> > > Just a quick note on this (if anyone is thinking of implementing
> > something)
> > > - it is also quite common for a contract to be both... i.e. have an
> > upfront
> > > payment plus a running spread. So, incorporating a simple payment at the
> > > front of a CDS could be the simplest way of allowing upfront prices.
> > >
> > > Simon
> > >
> > >
> > > On 6/3/08, Luca Billi <[hidden email]> wrote:
> > > >
> > > > Since sometimes CDS quotes are based on upfront (price) rather then
> > > > premium,
> > > > it would be nice to have the possibility to use directly that upfront
> > > > when bootstrapping credit curves and when pricing CDS contracts.
> > > >
> > > > I was wondering if anyone has thought about adding this feature or is
> > > > willing to share any ideas.
> > > >
> > > > Thanks,
> > > > Luca
> > > >
> > > >
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> >
> >
> >
>



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