A Note on Replicating a CDS Through a Repo and an Asset Swap
6 Pages Posted: 2 May 2013
Date Written: April 30, 2013
Abstract
In this note we show how to replicate a stylized CDS with a repurchase agreement and an asset swap. The latter must be designed in such a way that, on default of the issuer, it is terminated with a zero close-out amount. This break clause can be priced using the well known unilateral credit/debit valuation adjustment formulas.
Keywords: Credit Default Swap, Repurchase agreement, Structured Repo, Term repo, Repo to maturity, Asset swap, Early termination, Break clause, Close-out amount, Credit Valuation Adjustment, Debit Valuation Adjustment, CVA, DVA
JEL Classification: G12, G13
Suggested Citation: Suggested Citation
Giada, Lorenzo and Nordio, Claudio, A Note on Replicating a CDS Through a Repo and an Asset Swap (April 30, 2013). Available at SSRN: https://ssrn.com/abstract=2258795 or http://dx.doi.org/10.2139/ssrn.2258795
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