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Credit Default Swap

Posted by Gary Pai

Input:
Recovery rate (R)
Risk free rate (r)		%
Default probability at year 1 (dp1)
Default probability at year 2 (dp2)
Default probability at year 3 (dp3)
Default probability at year 4 (dp4)
Default probability at year 5 (dp5)
Output:
CDS spread

The calculation is based on reduced form model of Hull amd White. Assume that defaults always happen halfway through a year and that payments on the CDS are made once a year.

Tagged: Reduced Form Model, Credit Risk, Credit Default Swap Calculator

 •  Jan 25, 2013  •