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Measuring CDS Value-at-Risk
May 27, 2010
Measuring CDS Value-at-Risk
The CDS market recently changed its quoting convention from fair spread to upfront prices. We have taken this opportunity to revamp our VaR methodology. Specifically we are now using the nodes on the upfront term structure as risk factors. The empirical daily returns from single instrument CDS are far from normal, resembling a Laplacian distribution. We modify our MonteCarlo distributional assumptions accordingly.
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