Bootstrapping Credit Curves from CDS Spread Curves

21 Pages Posted: 21 Apr 2012

Date Written: November 17, 2008

Abstract

We present a simple procedure to construct credit curves by bootstrapping a hazard rate curve from observed CDS spreads. The hazard rate is assumed constant between subsequent CDS maturities. In order to link survival probabilities to market spreads, we use the JP Morgan model, a common market practice. We also derive approximate closed formulas for "cumulative" or "average" hazard rates and illustrate the procedure with examples from observed credit curves.

Keywords: hazard rates, risk-neutral hazard rates, risk-neutral default probabilities, CDS spread

JEL Classification: G13

Suggested Citation

Castellacci, Giuseppe, Bootstrapping Credit Curves from CDS Spread Curves (November 17, 2008). Available at SSRN: https://ssrn.com/abstract=2042177 or http://dx.doi.org/10.2139/ssrn.2042177

Giuseppe Castellacci (Contact Author)

New York University (NYU) ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

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