Defining, Estimating and Using Credit Term Structures. Part 3: Consistent Cds-Bond Basis

20 Pages Posted: 7 Jun 2005

See all articles by Arthur M. Berd

Arthur M. Berd

General Quantitative, LLC; The Journal of Investment Strategies

Roy Mashal

Lehman Brothers, New York

Peili Wang

Lehman Brothers, New York

Date Written: November 2004

Abstract

In the third part of this series, we introduce consistent relative value measures for CDS-Bond basis trades using the bond-implied CDS term structure derived from fitted survival rate curves. We explain why this measure is better than the traditionally used Z-spread or Libor OAS and offer simplified hedging and trading strategies which take advantage of the relative value across the entire range of maturities of cash and synthetic credit markets.

(see part 1 at: http://ssrn.com/abstract=736864 & part 2 at: http://ssrn.com/abstract=736883)

Keywords: Credit risk, credit bond, credit derivatives, CDS, relative value

JEL Classification: G10, G12, G13

Suggested Citation

Berd, Arthur M. and Mashal, Roy and Wang, Peili, Defining, Estimating and Using Credit Term Structures. Part 3: Consistent Cds-Bond Basis (November 2004). Available at SSRN: https://ssrn.com/abstract=736884 or http://dx.doi.org/10.2139/ssrn.736884

Arthur M. Berd (Contact Author)

General Quantitative, LLC ( email )

551 Madison Ave Suite 1202
New York, NY 10022
United States

The Journal of Investment Strategies ( email )

Haymarket House
28-29 Haymarket
London, SW1Y 4RX
United Kingdom

HOME PAGE: http://www.risk.net/type/journal/source/journal-of-investment-strategies

Roy Mashal

Lehman Brothers, New York ( email )

745 Seventh Avenue
New York, NY 10019
United States

HOME PAGE: http://www.faculty.idc.ac.il/roy/

Peili Wang

Lehman Brothers, New York ( email )

745 Seventh Avenue
New York, NY 10019
United States

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