.. _sphx_glr_api_gallery_credit_cds:

Credit default swaps
--------------------

Pricing protection, and reading default probabilities off quotes.


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  <div id='sg-tag-list' class='sphx-glr-tag-list'></div>


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    <div class="sphx-glr-thumbnails">

.. thumbnail-parent-div-open

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    <div class="sphx-glr-thumbcontainer" tooltip="A credit default swap exchanges a running premium for a payment of 1 - R at default. O&#x27;Kane and Turnbull (2003) wrote both legs as integrals over the default density and evaluated them on a grid with defaults at mid-step, including the premium accrued between the last payment date and default. The par spread equates the legs; for a flat hazard and a continuously paid premium it is exactly \lambda(1 - R).">

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  .. image:: /api/gallery/credit/cds/images/thumb/sphx_glr_plot_01_cds_par_spread_thumb.png
    :alt:

  :doc:`/api/gallery/credit/cds/plot_01_cds_par_spread`

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      <div class="sphx-glr-thumbnail-title">O'Kane and Turnbull: the CDS par spread</div>
    </div>


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    <div class="sphx-glr-thumbcontainer" tooltip="Since the 2009 &quot;Big Bang&quot; CDS trade with a fixed coupon (100 or 500 bp) and an upfront payment, and the ISDA standard model converts between quotes by bootstrapping a piecewise-constant hazard curve: solve for the hazard on (0, T_1] that reprices the shortest CDS, freeze it, solve the next segment, and so on. The bootstrapped curve reprices every quote and gives survival probabilities at any date.">

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  .. image:: /api/gallery/credit/cds/images/thumb/sphx_glr_plot_02_isda_hazard_bootstrap_thumb.png
    :alt:

  :doc:`/api/gallery/credit/cds/plot_02_isda_hazard_bootstrap`

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      <div class="sphx-glr-thumbnail-title">The ISDA standard model: bootstrapping hazard rates</div>
    </div>


.. thumbnail-parent-div-close

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    </div>


.. toctree::
   :hidden:

   /api/gallery/credit/cds/plot_01_cds_par_spread
   /api/gallery/credit/cds/plot_02_isda_hazard_bootstrap