A CDS Option Miscellany
Pricing of Securities
2026-03-10 v4
Abstract
CDS options allow investors to express a view on spread volatility and obtain a wider range of payoffs than are possible with vanilla CDS. We give a detailed exposition of different types of single-name CDS option, including options with upfront protection payment, recovery options and recovery swaps, and also presents a new formula for the index option. The emphasis is on using the Black-76 formula where possible and ensuring consistency within asset classes. In the framework shown here the `armageddon event' does not require special attention.
Cite
@article{arxiv.1201.0111,
title = {A CDS Option Miscellany},
author = {Richard J Martin},
journal= {arXiv preprint arXiv:1201.0111},
year = {2026}
}
Comments
Minor corrections, pricing example updates and new section (S1) on estimation of the ISDA RPV01