CDS Returns

42 Pages Posted: 13 Jun 2017 Last revised: 5 May 2020

See all articles by Patrick Augustin

Patrick Augustin

McGill University

Fahad Saleh

Wake Forest University - Schools of Business

Haohua Xu

McGill University - Desautels Faculty of Management

Date Written: May 4, 2020


We show that existing metrics of CDS returns poorly approximate cash flow-based CDS returns. Given the complexities involved in computing CDS returns correctly, we provide a simple closed-form approximation that bears a correlation of no less than 99% with the true return series. Our work emphasizes the importance of distinguishing between changes in credit spreads and CDS returns. In addition, it highlights the need to rely on true CDS return metrics to evaluate investment strategies and predictive return regressions that involve the selling or buying of CDS contracts.

Keywords: Correlations, Credit Default Swaps, Derivatives, Hedge Ratios, ISDA, Leverage

JEL Classification: G12, G13, G32

Suggested Citation

Augustin, Patrick and Saleh, Fahad and Xu, Haohua, CDS Returns (May 4, 2020). Available at SSRN: or

Patrick Augustin

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5

HOME PAGE: http://

Fahad Saleh (Contact Author)

Wake Forest University - Schools of Business

P.O. Box 7659
Winston-Salem, NC 27109-7285
United States

Haohua Xu

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1

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