Credit Default Swaps
Free CFA Level II lesson in Fixed Income. 10 min read, ~1,541 words.
CDS: protection buyer pays premium; seller makes contingent payment on credit event. Standardized coupons: 100 bps (IG), 500 bps (HY). Upfront payment settles the difference. Upfront = (Market spread - Fixed coupon) x EffSpreadDur x Notional. MTM gain to buyer = (Current spread - Contracted spread) x Duration x Notional...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Key Takeaways
- Exam Shortcuts
Learning objectives
- credit default swaps
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