Download This PaperBootstrapping 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: 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
Do you want regular updates from SSRN on Twitter?
Feedback
Feedback to SSRN
If you need immediate assistance, call 877-SSRNHelp (877 777 6435) in the United States, or +1 212 448 2500 outside of the United States, 8:30AM to 6:00PM U.S. Eastern, Monday - Friday.