Defining, Estimating and Using Credit Term Structures. Part 3: Consistent Cds-Bond Basis
20 Pages Posted: 7 Jun 2005
Date Written: November 2004
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: Suggested Citation